10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                  to                                 .

Commission file number 1-31443

HAWAIIAN HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	71-0879698
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
3375 Koapaka Street, Suite G-350, Honolulu, Hawaii	96819
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (808) 835-3700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock ($.01 par value)	American Stock Exchange and NYSE Area

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  o  No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o          Accelerated filer  x          Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Rule Act 12b-2). Yes  o  No  x

The aggregate market value of the voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $158,283,308, computed by reference to the closing sale price of the Common Stock on the American Stock Exchange, on June 30, 2006, the last business day of the Registrant’s most recently completed second fiscal quarter.

As of February 28, 2007, 46,583,914 shares of Common Stock of the Registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement for Annual Meeting of Stockholders to be held on May 30, 2007 will be incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

			Page
PART I			4
	ITEM 1.	BUSINESS	4
	ITEM 1A.	RISK FACTORS	12
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	21
	ITEM 2.	PROPERTIES	22
	ITEM 3.	LEGAL PROCEEDINGS	23
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	24
PART II			25
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	25
	ITEM 6.	SELECTED FINANCIAL DATA	28
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	30
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	56
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	125
	ITEM 9A.	CONTROLS AND PROCEDURES	125
	ITEM 9B.	OTHER INFORMATION	127
PART III			127
	ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS	127
	ITEM 11.	EXECUTIVE COMPENSATION	127
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	127
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	127
	ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	127
PART IV			127
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	127
	SIGNATURES		139

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect our current views with respect to certain current and future events and financial performance. These forward-looking statements are and will be, as the case may be, subject to many risks, uncertainties and factors relating to our operations and business environments which may cause our actual results to be materially different from any future results, expressed or implied, in these forward-looking statements.

Factors that could cause actual results to differ materially from these forward-looking statements include, but are not limited to, the following:

·aviation fuel costs;

·Hawaiian’s dependence on tourist travel;

·competition in the interisland market;

·the effects of seasonality and cyclicality;

·the concentration of our business in Hawaii;

·the competitive advantages held by network carriers in the transpacific markets;

·the possibility of new entrants into the transpacific market;

·competitive pressures on pricing (particularly from lower-cost competitors);

·demand for transportation in the markets in which Hawaiian operates;

·the impact of our substantial financial and operating leverage;

·our ability to comply with financial covenants;

·the competitiveness of our labor costs;

·our relationship with our employees and possible work stoppages;

·our ability to attract, motivate and/or retain key executives and other employees;

·increasing dependence on technologies to operate Hawaiian’s business;

·our reliance on other companies for facilities and services (including, without limitation, aircraft maintenance, code sharing, reservations, computer services, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling and personnel training);

·Hawaiian’s fleet concentration in out-of-production Boeing 717-200 aircraft;

·the impact of indebtedness on our financial condition and results of operations;

·the effects of any hostilities or act of war (in the Middle East or elsewhere) or any terrorist attack;

·increases in aircraft maintenance costs due to the aging and increased utilization of our fleet, and the possible unavailability of aircraft;

·bankruptcies in the airline industry and the possible negative impact such bankruptcies might have on fares and excess capacity;

·government legislation and regulation, including the Aviation and Transportation Security Act (ATSA) and other such regulations stemming from the September 11, 2001 or future terrorist attacks;

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·changes that may be required by the Federal Aviation Administration (FAA) or other regulators to Hawaiian’s aircraft or operations;

·the impact of possible aircraft incidents;

·the impact of possible outbreaks of disease;

·economic conditions generally;

·changes in competition and capacity in all of the markets we serve;

·changes in the level of fares we can charge and remain competitive;

·the cost and availability of insurance, including aircraft insurance;

·security-related costs;

·consumer perceptions of the services of Hawaiian; and

·other risks and uncertainties set forth from time to time in our reports to the Securities and Exchange Commission, included under “Risk Factors” in this annual report.

We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this annual report.

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PART I

ITEM 1.BUSINESS.

Overview

Hawaiian Holdings, Inc. (the Company, Holdings, we, us and our) is a holding company whose primary asset is the sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Based on the total number of miles flown by revenue passengers in 2006, Hawaiian was the largest airline headquartered in Hawaii and the seventeenth largest domestic airline in the United States. Hawaiian offers daily service on transpacific routes between Hawaii and Los Angeles, Sacramento, San Diego, San Francisco, San Jose, Las Vegas, Phoenix, Portland, and Seattle, as well as daily service among the Hawaiian Islands, and additional service to Australia, American Samoa and Tahiti. Charter service is also provided from Honolulu to Anchorage, Alaska. As of December 31, 2006, Hawaiian operated a fleet of 11 Boeing 717-200 aircraft for its interisland routes and 15 Boeing 767-300 aircraft for its transpacific, South Pacific and charter routes.

Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii and became our indirect wholly-owned subsidiary pursuant to a corporate restructuring that was consummated in August 2002. Hawaiian became a Delaware corporation and our direct wholly-owned subsidiary in June 2005 pursuant to a short-form merger described in greater detail below under “Consummation of Hawaiian’s Joint Plan of Reorganization.” We were incorporated in April 2002 under the laws of the State of Delaware.

General information about us, including our corporate governance guidelines and the charters for the committees of our Board of Directors, can be found at http://www.hawaiianair.com/about/. Our Board of Directors has adopted a code of ethics entitled “Code of Business Ethics and Conduct” that applies to all of our employees, officers and directors. Our code of ethics can be found at http://www.hawaiianair.com/about/. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the Securities and Exchange Commission (SEC). Information on our website is not incorporated into this Annual Report on Form 10-K or our other securities filings and is not a part of them.

Consummation of Hawaiian’s Joint Plan of Reorganization

On March 21, 2003, Hawaiian filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Hawaii. We did not file for relief under Chapter 11 of the Bankruptcy Code. On May 30, 2003, a bankruptcy trustee was selected to serve in connection with the Chapter 11 filing and operate Hawaiian, which thereafter operated its business under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the bankruptcy code and orders of the bankruptcy court until June 2, 2005, the effective date of Hawaiian’s joint plan of reorganization as discussed further below. The appointment of the bankruptcy trustee effectively served to divest operational and financial control of Hawaiian from our officers and directors, and severed the availability of funds needed to support our efforts to meet our ongoing financial and other obligations, including our reporting requirements under the Securities Exchange Act of 1934, as amended.

On March 11, 2005, we, together with the bankruptcy trustee, the unsecured creditors of Hawaiian, our wholly-owned subsidiary formerly known as HHIC, Inc., a Delaware corporation (HHIC), and RC Aviation LLC (RC Aviation), a principal stockholder of the Company, sponsored the Third Amended Joint Plan of Reorganization (the Joint Plan) to provide for Hawaiian to emerge from bankruptcy. The Joint Plan provided for payment in full of all allowed claims, including unsecured claims. The Joint Plan also provided for the merger of Hawaiian Airlines, Inc., a Hawaii corporation, with and into HHIC, with HHIC as the surviving entity immediately changing its name to Hawaiian Airlines, Inc. As used in this

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report, the term Hawaiian refers to the predecessor company for all periods prior to the HHIC merger and the successor company for all periods subsequent to the merger. We retained our equity interest in Hawaiian; however, in connection with the Joint Plan, we issued shares of our common stock to creditors of Hawaiian to help fund the Joint Plan, resulting in a dilution of the ownership interest of our common stockholders.

The Joint Plan was consummated on June 2, 2005 (the Effective Date), at which point we regained control of Hawaiian. Except as otherwise provided in the Joint Plan, on such date, all property of the estate of Hawaiian as an entity in bankruptcy vested in Hawaiian. Hawaiian’s emergence from bankruptcy was accounted for as a business combination, with the assets and liabilities of Hawaiian recorded in our consolidated financial statements at their fair values as of June 2, 2005 and the results of Hawaiian’s operations included in our results of operations from that date.

The Joint Plan provided for the settlement of the allowed claims under Hawaiian’s bankruptcy case by a combination of $126.4 million in cash payments and the issuance of approximately 14.1 million shares of our common stock. We also assumed long-term payment obligations of $32.9 million. We incurred substantial indebtedness to fund the Joint Plan including the issuance of $60.0 million of 5.0% unsecured subordinated convertible notes due June 1, 2010 (the Notes), a $50.0 million variable interest rate senior secured credit facility (of which $25.0 million was drawn in the form of a three-year term loan at June 2, 2005) and a $25.0 million 10.0% subordinated secured three-year term loan.

Flight Operations

Our flight operations are based in Honolulu, Hawaii. In January 2007, we operated approximately 152 scheduled and charter flights per day with:

·Daily service on our transpacific routes between Hawaii and Los Angeles, Sacramento, San Diego, San Jose, and San Francisco, California; Las Vegas, Nevada; Phoenix, Arizona; Portland, Oregon and Seattle, Washington;

·Daily service on our interisland routes among the four major islands of the State of Hawaii;

·Scheduled service on our South Pacific routes between Hawaii and Pago Pago, American Samoa, and Papeete, Tahiti and Sydney, Australia;

·Public charter service between Honolulu and Anchorage, Alaska; and

·Other ad hoc charters.

Fuel

Our operations and financial results are significantly affected by the availability and price of jet fuel. The following table sets forth statistics about Hawaiian’s aircraft fuel consumption and cost, including the impact of Hawaiian’s fuel hedging program, for the years 2006 through 2004.

Year	Gallons consumed		Total cost, including taxes			Average cost per gallon			Percent of operating expenses
	(in thousands)
2006		114,236		$	241,611		$	2.12		27.3
2005		111,220		$	201,157		$	1.81		24.6
2004		104,911		$	135,866		$	1.30		19.3

As illustrated by the table above, fuel costs constitute a significant portion of Hawaiian’s operating expense. Approximately 55% of Hawaiian’s fuel is based on Singapore jet fuel prices; the remaining 45% is

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based on U.S. West Coast jet fuel prices. Fuel prices are volatile; based on gallons expected to be consumed in 2007, for every one cent change in the cost per gallon of jet fuel, Hawaiian’s annual fuel expense increases or decreases by approximately $1.3 million. Jet fuel costs represented 27.3% of Hawaiian’s operating expenses in 2006. The cost of jet fuel is influenced by international political and economic circumstances, such as unrest in Iraq and other conflicts in the Middle East, OPEC production curtailments, disruption of oil imports, increased demand by China, India and other developing countries, environmental concerns, weather and other unpredictable events. Further increases in jet fuel prices or disruptions in fuel supplies, whether as a result of natural disasters or otherwise, could have a material adverse effect on our results of operations, financial position or liquidity.

Hawaiian purchases aircraft fuel at prevailing market prices, but seeks to manage market risk through execution of a hedging strategy. From time to time, Hawaiian has entered into various derivative instruments to hedge a portion of our anticipated jet fuel requirements. In September 2004, Hawaiian resumed a jet fuel hedging program which utilized forward heating oil contracts in order to moderate market risks and mitigate its financial exposure to fluctuations in its cost of jet fuel. In May 2005, Hawaiian terminated its heating oil contracts and entered into jet fuel forward contracts with a single counterparty to hedge a portion of its fuel consumption requirements. Jet fuel forward contracts are not traded on commodities exchanges due to the limited market for such contracts. However, they tend to have a higher level of effectiveness than do heating oil forward contracts. As of December 31, 2006, our fuel hedges outstanding were in a loss position. The fair value of our obligation related to these contracts was $1.1 million. As of February 2007, Hawaiian had hedged approximately 44%, 23%, 4% and 1% of its anticipated aircraft fuel consumption for the first, second, third and fourth quarters of 2007, respectively.

Aircraft Maintenance

Our aircraft maintenance programs consist of a series of phased or continuous checks for each aircraft type. These checks are performed at specified intervals measured by calendar months, time flown or by the number of takeoffs and landings, or cycles, operated. In addition, we perform inspections, repairs and modifications of our aircraft in response to Federal Aviation Administration (FAA) directives. Checks range from “walk around” inspections before each flight departure to major overhauls of the airframes which can take several weeks to complete. Aircraft engines are subject to phased maintenance programs designed to detect and remedy potential problems before they occur. The service lives of certain airframe and engine parts and components are time or cycle controlled, and such parts and components are replaced or refurbished prior to the expiration of their time or cycle limits.

Code Sharing and Other Alliances

We have marketing alliances with other airlines that provide reciprocal frequent flyer mileage accrual and redemption privileges and code sharing on certain flights (one carrier placing its name and flight numbers, or code, on flights operated by the other carrier). We have code sharing agreements with American Airlines, American Eagle, Continental Airlines, Harmony Airways, Island Air, Korean Air, Northwest Airlines and US Airways. We also participate in the frequent flyer programs of American Airlines, American Eagle, Continental Airlines, Island Air, Northwest Airlines, US Airways, Virgin Atlantic Airways and Virgin Blue. We also have a code share and reciprocal frequent flyer agreement with Alaska Airlines that expires on April 30, 2007. These programs enhance our revenue opportunities by:

·providing our customers more value by offering easier access to more travel destinations and better mileage accrual/redemption opportunities;

·gaining access to more connecting traffic from other airlines; and

·providing members of our alliance partners’ frequent flyer programs an opportunity to travel on our system while earning mileage credit in the alliance partners’ programs.

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Although these programs and services increase our ability to be more competitive, they also increase our reliance on third parties.

Marketing

In an effort to reduce our reliance on travel agencies and lower our distribution costs, we continue to pursue e-commerce initiatives. We currently utilize web-fare discounts to improve service to our customers and to reduce our distribution costs. In addition, we provide internet check-in and self-service kiosks to improve the customer check-in process. Our website, www.HawaiianAirlines.com, offers our customers information on our flight schedules, our HawaiianMiles frequent flyer program, the ability to book reservations on our flights or connecting flights with any of our code share partners, the status of our flights as well as the ability to purchase tickets or travel packages. We also publish fares with web-based travel services such as Orbitz, Travelocity, Expedia, Hotwire and Priceline. These comprehensive travel planning websites provide customers with convenient online access to airline, hotel, car rental and other travel services.

On October 19, 2006, our website began to allow the general public to purchase gift certificates via Hawaiian Gifts, LLC (Hawaiian Gifts), a newly created subsidiary of the Company. In addition, Hawaiian Gifts also sells gift cards which are available at supermarkets in Hawaii and West Coast regions that we serve. These gift certificates and gift cards are to be redeemed for air transportation on Hawaiian.

Frequent Flyer Program

The HawaiianMiles frequent flyer program was initiated in 1983 to encourage and develop customer loyalty. HawaiianMiles allows passengers to earn mileage credits by flying with us and our partner carriers. In addition, members earn mileage credits for patronage with our other program partners, including hotels, car rental firms, credit card issuers and long distance telephone companies, pursuant to our exchange partnership agreements. We also sell mileage credits to other companies participating in the program.

HawaiianMiles members have a choice of various awards based on accumulated mileage credits, with most of the awards being for free air travel on Hawaiian. Travel awards range from a 5,000 mile award, which is redeemable for a SuperSaver one-way interisland flight, to a 105,500 mile award, which is redeemable for an Anytime one-way first class travel between the mainland U.S. and Sydney, Australia. In January 2006, we amended the HawaiianMiles program to allow members increased flexibility in redeeming their mileage credits for travel on Hawaiian.

Competition

Transpacific

We face multiple competitors on our transpacific routes including major network carriers such as American Airlines, Continental Airlines, Northwest Airlines, Delta Air Lines, United Airlines (United) and US Airways. ATA Airlines (ATA), a low-cost carrier, offers scheduled service to Hawaii with Southwest Airlines as a code share partner on its routes. Aloha Airlines provides scheduled service to multiple mainland cities from Hawaii, and various charter companies also provide unscheduled service to Hawaii mostly under public charter arrangements. We believe that transpacific competition is primarily based on fare levels, flight frequency, on-time performance and reliability, name recognition, schedule, affiliations, frequent flyer programs, customer service, aircraft type and in-flight service.

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South Pacific

Currently, we are the only provider of nonstop service between Honolulu and each of Pago Pago, American Samoa, and Papeete, Tahiti. We also operate roundtrip flights between Honolulu and Sydney, Australia, competing directly against Qantas Airways, its low-cost affiliate Jetstar and Air Canada on this route.

Interisland

Interisland routes are served by several carriers including Aloha Airlines, Island Air, Pacific Wings and a number of “air taxi” companies. Also, Mesa Airlines, through its go! operating division, began interisland service in June 2006. In January 2007, we operated approximately 120 daily interisland flights, which represented approximately 36% of the total daily interisland flights operated by all carriers in that month. We believe that interisland competition is primarily based on fare levels, flight frequency, on-time performance and reliability, name recognition, affiliations, frequent flyer programs, customer service and aircraft type.

Employees

As of December 31, 2006, Hawaiian had 3,454 active employees, consisting of 1,153 flight deck and cabin crew members, 933 customer service representatives, 573 ground support personnel, 246 maintenance and engineering personnel and 549 general management, administrative and clerical personnel. Approximately 84% of our employees are covered by labor agreements with the following organized labor groups:

Represented by	Employee Group	Agreement amendable on(*)
Air Line Pilots Association (ALPA)	Flight deck crew members	June 30, 2007
Association of Flight Attendants (AFA)	Cabin crew members	November 1, 2007
International Association of Machinists and Aerospace Workers (IAM)	Maintenance and engineering personnel	March 31, 2008
IAM	Customer service representatives	March 31, 2008
Network Engineering Group (NEG)	Communications personnel	March 31, 2008
Transport Workers Union (TWU)	Flight dispatch personnel	November 30, 2007

(*)Our relations with our labor organizations are governed by the Title II of the Railway Labor Act of 1926, pursuant to which act the collective bargaining agreements between us and these organizations do not expire but instead become amendable as of a certain date if either party wishes to modify the terms of the agreement.

Seasonality

Our operations and financial results are subject to substantial seasonal and cyclical volatility, primarily due to leisure and holiday travel patterns. Hawaii is a popular vacation destination for travelers. Demand levels are typically weaker in the first quarter of the year with stronger demand periods occurring during June, July, August and December. During weaker demand periods, we may adjust our flight availability to obtain a profitable passenger load factor, or utilize discounted fare pricing strategies to increase our traffic volume, which may involve higher ticket discounts during these periods.

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Customers

Our business is not dependent upon a single customer, or a few customers, the loss of any one or more of which would have a material adverse effect on our business.

Regulation

Our business is subject to extensive and evolving federal, state, local and transportation laws and regulations in the U.S. Many of these agencies regularly examine our operations to monitor compliance with applicable laws and regulations. Governmental authorities can enforce compliance with applicable laws and regulations and obtain injunctions or impose civil or criminal penalties in case of violations.

We cannot guarantee that we will be able to obtain or maintain necessary governmental approvals. Once obtained, operating permits are subject to modification and revocation by the issuing agencies. Compliance with these and any future regulatory requirements could require us to make significant capital and operating expenditures. However, most of these expenditures are made in the normal course of business and do not place us at any competitive disadvantage. The primary U.S. federal statutes affecting our business are summarized below:

Industry Regulations

As a certificated air carrier, we and all other U.S. domestic airlines are subject to the regulatory jurisdiction of the U.S. Department of Transportation (DOT) and the FAA. The DOT has jurisdiction over certain aviation matters such as a carrier’s certificate of public convenience and necessity, international routes and fares, consumer protection policies including baggage liability and denied-boarding compensation, and unfair competitive practices as set forth in the Airline Deregulation Act of 1978. We operate under a Certificate of Public Convenience and Necessity issued by the DOT (authorizing us to provide commercial aircraft service) as well as a Part 121 Scheduled Carrier Operating Certificate issued by the FAA. These certificates may be altered, amended, modified or suspended by the DOT if public convenience and necessity so require, or may be revoked for intentional failure by the holder of the certificate to comply with the terms and conditions of a certificate. The FAA has regulatory jurisdiction over flight operations generally, including equipment, ground facilities, security systems, maintenance and other safety matters. Pursuant to these regulations, we have established, and the FAA has approved, a maintenance program for each type of aircraft we operate that provides for the ongoing maintenance of our aircraft, ranging from frequent routine inspections to major overhauls. To assure compliance with its operational standards, the FAA requires air carriers to obtain operating, airworthiness and other certificates, which may be suspended or revoked for cause. The FAA also conducts safety audits and has the power to impose fines and other sanctions for violations of aviation safety and security regulations. Like other carriers, we are subject to inspections by the FAA in the normal course of business and on a routine basis.

Maintenance Directives

The FAA approves all airline maintenance programs, including modifications to the programs. In addition, the FAA licenses the mechanics who perform the inspection, repairs and overhauls, as well as the inspectors who monitor the work.

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The FAA frequently issues airworthiness directives, often in response to specific incidents or reports by operators or manufacturers, requiring operators of specified equipment types to perform prescribed inspections, repairs or modifications within stated time periods or numbers of cycles. In the last several years, the FAA has issued a number of maintenance directives and other regulations relating to, among other things, cargo compartment fire detection/suppression systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement and increased inspection requirements. We cannot predict what new airworthiness directives will be issued and what new regulations will be adopted, or how our businesses will be affected by any such directives or regulations. We expect that we may incur expenses to comply with new airworthiness directives and regulations.

We believe we are in compliance with all requirements necessary to be in good standing with our air carrier operating certificate issued by the FAA. A modification, suspension or revocation of any of our FAA authorizations or certificates would have a material adverse effect on our operations.

Airport Security

The Aviation and Transportation Security Act (ATSA), enacted in November 2001, created the Transportation Security Administration (TSA), which is part of the Department of Homeland Security (DHS) and is responsible for aviation security. The ATSA mandates that the TSA provide for the screening of all passengers and property, including mail, cargo, carry-on and checked baggage, and other articles that will be carried aboard a passenger aircraft. Under the ATSA, substantially all security screeners at airports are now federal employees, and significant other elements of airline and airport security are now overseen and performed by federal employees, including security managers, law enforcement officers and federal air marshals. The ATSA also provides for increased security on flight decks of aircraft and requires federal air marshals to be present on certain flights, improved airport perimeter access security, airline crew security training, enhanced security screening of passengers, baggage, cargo, mail, employees and vendors, enhanced training and qualifications of security screening personnel, additional provision of passenger data to U.S. Customs and Border Protection and enhanced background checks. Funding for airline and airport security under the law is primarily provided by a $2.50 per enplanement security service fee ($5.00 one-way maximum fee for multiple segments) which is being collected from passengers by the air carriers and submitted to the government. The TSA also has the authority to impose additional fees on the air carriers if necessary to cover additional federal aviation security costs. Since 2002, the TSA has imposed an Aviation Security Infrastructure Fee on all airlines to assist in the cost of providing aviation security. The fees assessed are based on airlines’ actual security costs for the year ended December 31, 2000. The TSA has announced that this fee structure will remain in place until further notice. Furthermore, because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports have significantly increased their rates and charges to airlines, including us, and may do so again in the future. Most airports where we operate impose passenger facility charges of up to $4.50 per segment, subject to an $18 per roundtrip cap.

Noise Abatement

The DOT allows local airport authorities to implement procedures designed to abate special noise problems, provided such procedures do not unreasonably interfere with interstate and foreign commerce, or the national transportation system. Certain airports, including the major airports at Los Angeles, San Diego, San Francisco, San Jose and Sydney, Australia, have established airport restrictions to limit noise, including restrictions on aircraft types to be used and limits on the number of hourly or daily operations or the time of such operations. Local authorities at other airports could consider adopting similar noise regulations. In some instances, these restrictions have caused curtailments in services or increases in operating costs, and such restrictions could limit our ability to expand our operations.

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Environmental and Employee Safety and Health

We are subject to various laws and government regulations concerning environmental matters and employee safety and health in the U.S. and other countries which we do business. Many aspects of airlines’ operations are subject to increasingly stringent federal, state and local laws protecting the environment. U.S. federal laws that have a particular impact on us include the Airport Noise and Capacity Act of 1990, the Clean Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Safe Drinking Water Act, and the Comprehensive Environmental Response, Compensation and Liability Act. Certain of our operations are also subject to the oversight of the Occupational Safety and Health Administration (OSHA) concerning employee safety and health matters. The U.S. Environmental Protection Agency (EPA), OSHA, and other federal agencies have been authorized to promulgate regulations that impact our operations. In addition to these federal activities, various states have been delegated certain authorities under the aforementioned federal statutes. Many state and local governments have adopted environmental and employee safety and health laws and regulations, some of which are similar to or stricter than federal requirements, such as California.

Taxes

The airline industry is subject to various passenger, cargo and fuel taxes, which change from time to time. Certain of these taxes are assessed directly to the air carrier (e.g., excise taxes on fuel); while certain other of these taxes are pass though taxes (e.g., excise taxes on air transportation of passengers and cargo). The Bush Administration has proposed changing the current funding mechanism for the FAA air traffic control system and the airport improvement program, which involves the imposition of certain taxes and fees, by introducing a cost-based user fee to be collected from all users of the system, including additional fees charged to users of highly congested airports. The Administration also proposed that Congress authorize the FAA to borrow $5 billion to fund capital improvements necessary to upgrade the air traffic control system and reduce costly delays, which would require additional user fees between 2013 and 2017, and allow airports to increase their passenger facility charges from $4.50 to $6 per segment. We cannot predict what future actions Congress may take in response to the proposal or whether any such actions will have a material effect on our costs or revenue.

Civil Reserve Air Fleet Program

The U.S. Department of Defense regulates the Civil Reserve Air Fleet (CRAF) and government charters. We have elected to participate in the CRAF program whereby we have agreed to make our Boeing 767 aircraft available to the federal government for use by the U.S. military under certain stages of readiness related to national emergencies. The program is a standby arrangement that lets the U.S. Department of Defense U.S. Transportation Command call on as many as four contractually committed Hawaiian aircraft and crews to supplement military airlift capabilities.

In February 2003, the U.S. Secretary of Defense authorized a “Stage 1” mobilization of the CRAF program, the lowest activation level. We were required to make one passenger aircraft available as a result of this Stage 1 mobilization. Under the requirements of a Stage 2 mobilization, an additional passenger aircraft would be required. The remaining aircraft subject to the CRAF program would be mobilized under a Stage 3 mobilization, which for us would involve a total of four passenger aircraft. While the government would reimburse us for the use of these aircraft, the mobilization of aircraft under the CRAF program could have a significant adverse impact on our results of operations.

Other Regulations

Several aspects of airline operations are subject to regulation or oversight by federal agencies other than the FAA and the DOT. The federal antitrust laws are enforced by the U.S. Department of Justice.

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The U.S. Postal Service has jurisdiction over certain aspects of the transportation of mail and related services provided by our cargo services. Labor relations in the air transportation industry are generally regulated under the Railway Labor Act. We and other airlines certificated prior to October 24, 1978 are also subject to preferential hiring rights granted by the Airline Deregulation Act to certain airline employees who have been furloughed or terminated (other than for cause). The Federal Communications Commission issues licenses and regulates use of all communications frequencies assigned to us and the airlines generally.

Additional laws and regulations are proposed from time to time, which could significantly increase the cost of airline operations by imposing additional requirements or restrictions. Laws and regulations also have been considered from time to time that would prohibit or restrict the ownership and/or transfer of airline routes or takeoff and landing slots. Also, the award of international routes to U.S. carriers (and their retention) is regulated by treaties and related agreements between the U.S. and foreign governments, which are amended from time to time. We cannot predict what laws and regulations will be adopted or what changes to international air transportation treaties will be adopted, if any, or how we will be affected by those changes.

ITEM 1A. RISK FACTORS.

In addition to the risks identified elsewhere in this report, the following risk factors apply to our business, results of operations and financial conditions:

Risks Relating to our Business

Our business is adversely affected by increases in fuel prices.

Aircraft fuel costs constitute a significant portion of Hawaiian’s operating expenses, and our results are significantly impacted by changes in the cost of fuel. Fuel costs represented 27.3% and 24.6% of Hawaiian’s operating expenses for the years ended December 31, 2006 and 2005, respectively. Based on gallons expected to be consumed in 2007, for every one cent change in the cost per gallon of jet fuel, Hawaiian’s annual fuel expense increases or decreases by approximately $1.3 million. Fuel prices and supplies are influenced significantly by international political and economic circumstances, such as the war and post-war unrest in Iraq, as well as OPEC production curtailments, a disruption of oil imports, other conflicts in the Middle East, increasing demand from China, India and other developing countries, environmental concerns, weather and other unpredictable events. For example, during the third quarter of 2005, Hurricanes Katrina and Rita caused widespread disruption to oil production, refinery operations and pipeline capacity along the U.S. Gulf Coast. As a result of these disruptions, the price of jet fuel increased significantly and the availability of jet fuel supplies was diminished. Further increases in jet fuel prices or disruptions in fuel supplies, whether as a result of natural disasters or otherwise, could have a material adverse effect on our results of operations, financial position or liquidity.

Our business is highly dependent on tourism, and our financial results could suffer if there is a downturn in tourism levels.

Our principal base of operations is in Hawaii and our revenue is linked primarily to the number of travelers (mostly tourists) to, from and among the Hawaiian Islands. Hawaii tourism levels are affected by, among other things, the political and economic climate in Hawaii’s main tourism markets, the availability of hotel accommodations, promotional spending by competing destinations, the popularity of Hawaii as a tourist destination relative to other vacation options, and other global factors, including natural disasters, safety and security. From time to time, various events and industry specific problems such as strikes have had a negative impact on tourism in Hawaii. In addition, the potential or actual occurrence of terrorist attacks, the wars in Afghanistan and Iraq, and the threat of other negative world events has had and may in

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the future again have a material adverse effect on Hawaii tourism. No assurance can be given that the level of passenger traffic to Hawaii will not decline in the future. A decline in the level of Hawaii passenger traffic could have a material adverse effect on our results of operations and financial condition.

Our business is subject to substantial seasonal and cyclical volatility.

Our profitability and liquidity are sensitive to seasonal volatility primarily due to leisure and holiday travel patterns. Hawaii is a popular vacation destination. Demand is typically stronger during June, July, August and December and considerably weaker at other times of the year. During weaker demand periods, we may utilize discounted fare pricing strategies to increase our traffic volume. Our results of operations generally reflect this seasonality, but are also impacted by numerous other factors that are not necessarily seasonal. These factors include the extent and nature of fare changes and competition from other airlines, changing levels of operations, national and international events, fuel prices and general economic conditions, including inflation. Because a substantial portion of both personal and business airline travel is discretionary, the industry tends to experience adverse financial results in general economic downturns. Additionally, airlines generally require substantial liquidity to sustain continued operations under most conditions.

The concentration of our business in Hawaii, and between Hawaii and the western United States, provides little diversification of our revenue.

Most of our revenue is generated from air transportation between the islands of Hawaii and the western United States, or within the Hawaiian islands. Many of our competitors, particularly major network carriers with whom we compete in the transpacific business, enjoy greater geographical diversification of their revenue. A reduction in the level of demand for travel within Hawaii, or to Hawaii from the western United States or the U.S. mainland in general, or an increase in the level of industry capacity on these routes may reduce the revenue we are able to generate and adversely affect our financial results. As these routes account for a significantly higher proportion of our revenue than they do for many of our competitors, such a reduction would have a relatively more adverse impact on our financial results.

Our business is increasingly impacted by competition from low cost carriers.

Until recent years, Hawaiian has been largely insulated from direct competition from low cost carriers or LCCs. Most LCCs have lacked the fleet and infrastructure necessary to provide long-haul trans-oceanic service. The Hawaii market has, however, in recent years, seen growing LCC competition from carriers such as ATA and US Airways. ATA offers service to Hawaii from a number of West Coast markets and enjoys a marketing and code sharing relationship with Southwest Airlines providing access to Southwest’s customer base and website. US Airways has positioned its business as a low cost carrier following its emergence from bankruptcy and combination with America West Airlines and commenced service to Hawaii at the end of 2005. Our interisland business also faces LCC competition following the entrance of go! (an operating division of Mesa Airlines) and the emergence of Aloha Airlines from bankruptcy in early 2006. We also face the threat of more LCC competition in the future. Furthermore, a more fundamental and immediate consequence for us of the proliferation of LCCs is the response from full service network carriers, which are meeting the competition from LCCs by significantly reducing costs and adjusting their route networks to divert resources to long-haul markets such as Hawaii, where LCC competition is less severe. The result is that the network carriers have at the same time reduced their costs of operation and increased capacity in the Hawaii market. Additional capacity to Hawaii, whether from network carriers or LCCs, could result in a decrease in our share of the markets in which we operate, a decline in our yields, or both, which could have a material adverse effect on our results of operations and financial condition.

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Our competitors have reduced their operating costs, enabling them to compete successfully at lower fare levels.

In recent years, many of our competitors have dramatically reduced operating costs through a combination of operational restructuring, business simplification and vendor and labor negotiations. Several airlines, including United Airlines, Delta Air Lines, Northwest Airlines, US Airways, ATA and Aloha Airlines filed for bankruptcy protection since 2001, resulting in reduced labor costs, restructuring of debt and lease agreements and other financial improvements. Other carriers, including American Airlines and Continental Airlines, have also reduced operating costs outside of the bankruptcy process. With reduced costs, these competitors are more capable of operating profitably in an environment of reduced fares and may, as a result, increase service in our primary markets or reduce fares to attract additional customers. Because airline customers are price sensitive, we cannot assure that we will be able to attract a sufficient number of customers at sufficiently high fares levels to generate profitability, or that we will be able to reduce our operating costs sufficiently to remain competitive with these airlines.

Our business is impacted by the competitive advantages held by network carriers in the transpacific market.

In the transpacific market, most of our competition comes from network carriers such as United Airlines, American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines and US Airways. Network carriers have a number of competitive advantages relative to Hawaiian that historically have enabled them to obtain higher fares or attract higher customer traffic levels than Hawaiian:

·Network carriers generate passenger traffic from throughout the U.S. mainland. In contrast, Hawaiian lacks a comparable network to feed passengers to its transpacific flights and is therefore more reliant on passenger demand in the cities we serve.

·Most network carriers operate from hubs, which can provide a built-in market of passengers, depending on the economic strength of the hub city and the size of the customer group that frequent the airline. For example, United flows sufficient passenger traffic throughout the U.S. mainland to schedule approximately 12 flights a day, depending on seasonality, between San Francisco and the Hawaiian islands, which gives San Francisco residents wishing to travel to Hawaii a large number of United non-stop flight choices to Oahu, Maui, Kauai and the Big Island, while Hawaiian, without feed traffic, can offer only one flight per day. In contrast, Honolulu, the hub of our operations, does not originate much transpacific travel, nor does it have the city strength or potential customer franchise of a city such as Chicago or Dallas necessary to provide Hawaiian with a built-in market. Tickets to Hawaii are for the most part not sold in Honolulu, but rather on the mainland, making Honolulu primarily a destination rather than origin of passenger traffic.

Capacity in the interisland market has increased dramatically, including the entry of a new competitor in 2006, and price discounts have escalated.

Since June 2006, capacity on our primary interisland routes (measured in the number of daily seats offered for sale) has increased dramatically. Mesa Airlines, through its operating division go!, entered the interisland business in June, with a schedule of approximately 60 daily flights offered as of February 2007. Also in March, Hawaiian expanded its schedule of interisland flights to remain competitive with go!’s schedule, particularly in the early morning and evenings. Aloha Airlines also expanded its schedule shortly thereafter. These capacity increases have been accompanied by significant downward pressure on interisland fare prices, including those charged by Hawaiian. In addition, in July 2007, the Superferry is expected to commence operations in Hawaii with daily interisland services between Oahu and Maui and Oahu and Kauai which will provide for transportation of passengers as well as vehicles.

The combination of increased capacity (seat availability) and price promotions as go! seeks to establish a customer following has resulted in a significant reduction in the revenue generated on our interisland

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routes since June 2006. We can offer no assurances that the competitive situation will change, or that we will be able to achieve cost reductions sufficient to offset the decline in revenue.

Demand for interisland service is declining, and is expected to decline for the foreseeable future.

The demand for interisland service has been steadily declining, as other airlines have increased direct service from the mainland to Oahu’s neighbor islands, obviating the need for interisland transfers, and as the infrastructure, particularly the availability of goods and services, in the neighbor islands improves. The total size of the interisland market is, therefore, expected to continue to shrink for the foreseeable future. A decline in the level of interisland passenger traffic could have a material adverse effect on our results of operations and financial condition.

Our share price could be subject to extreme price fluctuations, and stockholders could have difficulty trading shares.

The market price for our common stock has been and may continue to be subject to significant price fluctuations. Price fluctuations could be in response to operating results, changes in the competitive activity in the markets we serve, changes in jet fuel prices, additional bankruptcy filings among airlines, increased government regulation and general market conditions. Additionally, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may affect the price of our common stock.

In the past, securities class action litigation has often been instituted against a company following periods of volatility in the company’s stock price. This type of litigation, if filed against us, could result in substantial costs and divert our management’s attention and resources. In addition, the future sale of a substantial number of shares of common stock by us or by our existing stockholders may have an adverse impact on the market price of the shares of common stock. There can be no assurance that the trading price of our common stock will remain at or near its current level.

We are increasingly dependent on technology to operate our business.

We depend heavily on computer systems and technology, such as flight operations systems, communications systems, airport systems and reservations systems to operate our business. Any substantial or repeated failures of our computer or communications systems could impact our customer service, compromise the security of customer information, result in the loss of important data, loss of revenue, and increased costs, and generally harm our business. Like all companies, our computer and communication systems may be vulnerable to disruptions due to events beyond our control, including natural disasters, power or equipment failures, terrorist attacks, equipment or software failures, computer viruses and hackers. Although we have implemented various technology security initiatives and taken measures in an effort to reduce the adverse effects of certain potential failures or disruption, there can be no assurance that these measures are adequate to prevent or remedy disruptions of our systems.

We are subject to various risks as a result of our fleet concentration in Boeing 717s.

Our interisland fleet consists entirely of Boeing 717 aircraft. In January 2005, Boeing Commercial Airplanes (Boeing) announced it would discontinue the production of that aircraft model in 2006. As a result, the availability of parts and maintenance support for Boeing 717 aircraft may become limited in future years. Additionally, we may experience increased costs in later years associated with parts acquisition for and/or maintenance support of this aircraft. Other carriers operating with a more diversified fleet may be better able to withstand such an event, if such an event occurred in the future.

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We may experience delays in introducing our recently acquired Boeing 767-300 aircraft into revenue service.

We purchased four used Boeing 767-300 aircraft with the intention of introducing all four aircraft into service during 2006. However, due to unanticipated delays in obtaining FAA approval on our interior modifications, one aircraft was placed into service during September 2006 and one each in January and March 2007. We expect to have the remaining Boeing 767-300 aircraft available for revenue service by the end of the second quarter of 2007. However, due to possible further delays in the timely completion of the overhauls and modifications of the remaining aircraft, there are no assurances that the aircraft will be available by its revised scheduled induction.

As a result of the delays in operating these aircraft, we have incurred costs related to accommodating displaced passengers on other airlines and at costs exceeding the fares we collect for such canceled flights. Additionally, until the aircraft are in revenue service, there will be no direct incremental revenue to fund the fixed costs associated with our ownership and operation of these aircraft, including the wages and benefits for the additional flight crews and ground personnel we hired to accommodate the growth in our Boeing 767 aircraft fleet and the debt-service costs related to the increased debt we incurred in the first quarter of 2006 to help fund our acquisition of these aircraft. We have sold and are selling tickets for future travel on certain of our transpacific flights that are scheduled to be operated by the two remaining aircraft. Further delays to the availability of the aircraft and resultant cancellation of the flights they are scheduled to operate may result in further costs and lost incremental revenue.

We are highly reliant on third-party contractors to provide certain facilities and services for our operations, and termination of our third-party agreements could have a potentially adverse effect on our financial results.

We have agreements with Alaska Airlines, US Airways, American Airlines, Continental Airlines, Delta Air Lines, Northwest Airlines, Island Air, and certain other contractors, to provide certain facilities and services required for our operations. These facilities and services include aircraft maintenance, code sharing, reservations, computer services, frequent flyer programs, passenger processing, ground facilities, baggage and cargo handling and personnel training. Our reliance on these third parties to continue to provide these important aspects of our business impacts our ability to conduct our business effectively.

·Maintenance agreements.   We have maintenance agreements with Delta Air Lines, Goodrich Aviation Technical Services, the Pratt & Whitney division of United Technologies Corporation, Rolls Royce, Honeywell and others to provide maintenance services for our aircraft, engines, parts and equipment. If one or more of our maintenance providers terminate their respective agreements, we would have to seek alternative sources of maintenance service or undertake the maintenance of these aircraft or components ourselves. We cannot assure you that we would be able to do so on a basis that is as cost-effective as our current maintenance arrangements.

·Code sharing agreements.   We have code sharing agreements with Alaska Airlines, American Airlines, American Eagle, Continental Airlines, Harmony Airways, Island Air, Korean Air, Northwest Airlines and US Airways. We also participate in the frequent flyer programs of Alaska Airlines, American Airlines, American Eagle, Continental Airlines, Island Air, Northwest Airlines, US Airways, Virgin Atlantic Airways and Virgin Blue. Although these agreements increase our ability to be more competitive, they also increase our reliance on third parties.

·Fuel agreements.   We have entered into a jet fuel sale and purchase contract to provide us with a substantial amount of jet fuel, which we anticipate will be sufficient to meet all of our jet fuel needs for flights originating in Honolulu during 2007. If the fuel provider terminates its agreement with us, we would have to seek an alternative source of jet fuel. We cannot assure you that we would be able to do so on a basis that is as cost-effective as our current arrangement. We have agreements with vendors at all airports we serve to provide us with fuel. Should any of these vendors cease to provide service to Hawaiian for whatever reason, our operations could be adversely affected.

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·Travel agency and wholesale agreements.   In 2006, passenger ticket sales from travel agencies and wholesalers constituted approximately 24% of our total operating revenue. Travel agents and wholesalers generally have a choice between one or more airlines when booking a customer’s flight. Accordingly, any effort by travel agencies or wholesalers to favor another airline or to disfavor us could adversely affect our revenue. Although we intend to maintain favorable relations with travel agencies and wholesalers, there can be no assurance that they will continue to do business with us. The loss of any one or several travel agencies and or wholesalers may have a material adverse effect on operations.

We are subject to various risks associated with our labor outsourcing initiatives.

In July 2006, we reached an agreement with one of our largest labor unions allowing the outsourcing of various clerical and back-office functions including our reservation call center and certain accounting and information technology positions. In exchange for our ability to consider outsourcing as a strategy to reduce future labor and benefit costs, we provided furlough protection to the affected employees and allowed the transfer to other positions at same or higher pay scales. Our future agreements with third-party providers, including overseas third-party providers, may materially fail to meet our service level and performance standards and commitments to our customers. The failure of these providers to adequately perform their service obligations, or other unexpected interruptions of services, may reduce our revenues and increase our expenses, or prevent us from operating our flights profitably and providing other services to our customers. In addition, our business and financial performance could be materially harmed if our customers believe that our services are unreliable or unsatisfactory. In addition, to the extent we are unable to maintain the outsourcing or subcontracting of certain services for our business, we would incur substantial costs, including costs associated with hiring new employees, in order to return these services in-house.

We are dependent on satisfactory labor relations.

Labor costs are a significant component of airline expenses and can substantially impact an airline’s results. Labor and related benefit costs represented approximately 25.8% and 27.7% of Hawaiian’s operating expenses for the years ended December 31, 2006 and 2005, respectively. We may experience pressure to increase wages and benefits for our employees in the future. We may make strategic and operational decisions that require the consent of one or more of our labor unions. We cannot assure you that these labor unions will not require additional wages or benefits in return for their consent. In addition, we have entered into collective bargaining agreements with our pilots, mechanical group employees, clerical group employees, flight attendants, dispatchers and network engineers which are amendable in less than two years. We cannot assure you that future agreements with our employees’ unions will be on terms in line with our expectations or comparable to agreements entered into by our competitors, and any future agreements may increase our labor costs or otherwise adversely affect us. If we are unable to reach an agreement with any unionized work group, we may be subject to future work interruptions and/or stoppages, which may hamper or halt operations.

Our operations may be adversely affected if we are unable to attract and retain key executives, including our Chief Executive Officer.

We are dependent on our ability to attract and retain key executives, particularly Mark B. Dunkerley, our Chief Executive Officer, with whom we entered into a three-year employment agreement on August 18, 2005. Competition for such personnel in the airline industry is highly competitive, and we cannot be certain that we will be able to retain our Chief Executive Officer or other key executives or that we can attract other qualified personnel in the future. Any inability to retain our Chief Executive Officer

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and other key executives, or attract and retain additional qualified executives, could have a negative impact on our operations.

Our substantial debt could adversely affect our financial condition.

As of December 31, 2006, we had substantial indebtedness, including $126.0 million of debt related to the acquisition in December 2006 of three previously leased Boeing 767-300ER aircraft, $55.0 million of the Term A Credit Facility scheduled to mature in December 2010, a $62.5 million Term B Credit Facility scheduled to mature in March 2011 and $23.0 million of notes payable to the Internal Revenue Service (IRS) that mature in June 2011. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

The requirement to service our debt makes us more vulnerable to general adverse economic conditions, requires us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes, limits our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, and places us at a competitive disadvantage compared to any other competitor that has less debt than we do.

Certain of our financing agreements and our credit card processing agreement include financial covenants that impose substantial restrictions on our financial and business operations.

The terms of our Term A and Term B Credit Facilities with Wells Fargo Foothill, Inc. and Canyon Capital Advisors, LLC, respectively, restrict our ability to, among other things, incur additional indebtedness, pay dividends or make other payments on investments, consummate asset sales or similar transactions, create liens, merge or consolidate with any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. The terms of the agreements contain covenants that require us to meet certain financial tests to avoid a default that might lead to early termination of the facilities. Moreover, these agreements contain covenants that require us to meet certain financial tests. If we were not able to comply with these covenants, our outstanding obligations under these facilities could be accelerated and become due and payable immediately.

Under our bank-issued credit card processing agreement, our credit card processor holds back proceeds from advance ticket sales to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our consolidated balance sheet, totaled $53.7 million at December 31, 2006. Funds are subsequently made available to us as air travel is provided. The agreement also contains financial covenants which require, among other things, that we maintain a minimum amount of unrestricted cash and maintain certain levels of debt service coverage and operating income. Although we are currently in compliance with all of these covenants, failure to maintain compliance would result in our credit card processor being able to hold back additional proceeds from advance ticket sales, which would adversely affect our liquidity. Depending on our unrestricted cash balance at the time, the holdback of a significant amount of cash collateral could cause our unrestricted cash and short term investments balance to fall below the minimum balance requirement under our Term A Credit Facility, resulting in a default under that facility.

Our business has substantial financial and operating leverage.

The airline industry operates on low gross profit margins and revenue that varies substantially in relation to fixed operating costs. Due to high fixed costs, the expenses of each flight do not vary proportionately with the number of passengers carried, but the revenue generated from a particular flight is directly related to the number of passengers carried. Accordingly, while a decrease in the number of passengers carried would cause a corresponding decrease in revenue (if not offset by higher fares), it may

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result in a disproportionately greater decrease in profits. An increase in the number of passengers carried would have the opposite effect.

Our obligations for funding our defined benefit pension plans are significant and are affected by factors beyond our control.

Hawaiian sponsors three defined benefit pension plans. Although two of the plans were frozen effective October 1, 1993 and Hawaiian’s collective bargaining agreement with our pilots provides that benefit accruals for certain pilots will be frozen effective January 1, 2008, our unfunded pension obligation was $74.0 million as of December 31, 2006. Hawaiian made scheduled contributions of $10.9 million and $23.3 million for 2006 and 2005, respectively, and anticipates contributing $8.7 million to the defined benefit pension plans during 2007. The timing and amount of funding requirements depend upon a number of factors, including labor negotiations and changes to pension plan benefits as well as factors outside our control, such as asset returns, interest rates and changes in pension laws.

Risks Relating to the Airline Industry

The continued threat of terrorist attacks may adversely impact our business.

Since the terrorist attacks of September 11, 2001, the airline industry has experienced profound changes, including substantial revenue declines and cost increases, which have resulted in industry-wide liquidity issues. Additional terrorist attacks, even if not made directly on the airline industry, or the fear of such attacks (including elevated national threat warnings or selective cancellation or redirection of flights due to terror threats such as the August 2006 terrorist plot targeting multiple U.S. airlines), could further adversely impact us and the airline industry. Increased regulation governing carry-on baggage and passenger travel may further increase passenger inconvenience and reduce the demand for air travel. In addition, other world events and developments may further decrease demand for air travel, and could result in further increased costs for us and the airline industry. We are currently unable to estimate the impact of any future terrorist attacks. However, any future terrorist attacks could have a material adverse impact on our business, financial condition and results of operations, and on the airline industry in general.

The airline industry is highly competitive, and if we cannot successfully compete in the marketplace, our financial condition and results of operations will be adversely affected.

The airline industry is highly competitive, and many of our competitors are larger and have substantially greater financial resources than we do. The commencement of, or increase in, service on our routes by existing or new carriers could negatively impact our operating results. In the past, competing airlines have reduced fares and increased capacity beyond market demand on routes served by us in order to maintain or generate additional revenue. Further fare reductions and capacity increases by competing airlines could force us to reduce fares or adjust our capacity to levels that may adversely affect our operations and profitability. Many of our competitors have larger customer bases, greater brand recognition and significantly greater financial and marketing resources than we do. Either aggressive marketing tactics or a prolonged fare war initiated by one or more of these competitors could adversely impact our financial resources and affect our ability to compete in these markets.

Vigorous price competition exists in the airline industry, with competitors frequently offering discounted fares and other promotions to stimulate traffic during weaker demand periods, generate cash flow or increase relative market share in selected markets. Airline profit levels are highly sensitive to changes in fuel costs, fare levels and passenger demand. Passenger demand and fare levels are influenced by, among other things, the state of the global economy, domestic and international events, airline capacity and pricing actions taken by carriers. The September 11, 2001 terrorist attacks, turbulent international events (including the war and post-war unrest in Iraq), high fuel prices and extensive price discounting by

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carriers have resulted in significant losses for the airline industry. The introduction of broadly available, deeply discounted fares by a U.S. airline could result in lower yields for the entire industry and could have a material adverse effect on our operating results.

The airline industry is subject to extensive government regulation, and new regulations could have an adverse effect on our financial condition and results of operations.

Airlines are subject to extensive regulatory requirements that result in significant costs. Additional laws, regulations, taxes and airport rates and charges have been proposed from time to time that could significantly increase the cost of airline operations or reduce revenue. For example, the ATSA, which became law in November 2001, mandates the federalization of certain airport security procedures and imposes additional security requirements on airlines. The FAA from time to time issues directives and other regulations relating to the maintenance and operation of aircraft that require significant expenditures. Some FAA requirements cover, among other things, retirement of older aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement and other environmental concerns, commuter aircraft safety and increased inspections and maintenance procedures to be conducted on older aircraft. We expect to continue incurring expenses to comply with the FAA’s regulations.

Many aspects of airlines’ operations also are subject to increasingly stringent federal, state, local and foreign laws protecting the environment. Future regulatory developments in the U.S. and abroad could adversely affect operations and increase operating costs in the airline industry. For example, potential future actions that may be taken by the U.S. government, foreign governments, or the International Civil Aviation Organization to limit the emission of greenhouse gases by the aviation sector are unknown at this time, but the effect on us and our industry is likely to be adverse and could be significant. In addition, the ability of U.S. carriers to operate international routes is subject to change because the applicable arrangements between the U.S. and foreign governments may be amended from time to time, or because appropriate slots or facilities are not available. We cannot provide assurance that laws or regulations enacted in the future will not adversely affect us.

Our operations may be adversely impacted by increased security measures mandated by regulatory authorities.

Because of significantly higher security and other costs incurred by airports since September 11, 2001, many airports significantly increased their rates and charges to air carriers, including us, and may do so again in the future. Additionally, since September 11, 2001, the DHS and the TSA and other agencies within the DHS have implemented numerous security measures that affect airline operations and costs, and are likely to implement additional measures in the future. The DHS has announced greater use of passenger data for evaluating security measures to be taken with respect to individual passengers, expanded use of federal air marshals on flights (thus displacing revenue passengers), investigating a requirement to install aircraft security systems (such as active devices on commercial aircraft as countermeasures against portable surface to air missiles) and expanded cargo and baggage screening. The TSA has imposed additional measures affecting the contents of baggage that may be carried on an aircraft in response to the discovery in August 2006 of a terrorist plot targeting several U.S. airlines. The TSA and other security regulators may impose other measures as necessary to respond to future threats. A large part of the costs of these security measures is borne by the airlines and their passengers, and we believe that these and other security measures have the effect of increasing the inconvenience of air transportation and thus decreasing traffic. Security measures imposed by the U.S. and foreign governments subsequent to September 11, 2001 have increased our costs, and additional measures taken in the future may result in similar adverse effects. We cannot provide assurance that additional security requirements or security-related fees enacted in the future will not adversely affect us.

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Our insurance costs have increased substantially in recent years and further increases in insurance costs or reductions in coverage could have an adverse effect on our financial results.

We carry types and amounts of insurance customary in the airline industry, including coverage for general liability, passenger liability, property damage, aircraft loss or damage, baggage and cargo liability and workers’ compensation. We are required by the DOT to carry liability insurance on each of our aircraft. We currently maintain commercial airline insurance with a major group of independent insurers that regularly participate in world aviation insurance markets including public liability insurance and coverage for losses resulting from the physical destruction or damage to our aircraft. However, there can be no assurance that the amount of such coverage will not be changed, or that we will not bear substantial losses from accidents. We could incur substantial claims resulting from an accident in excess of related insurance coverage that could have a material adverse effect on our results of operations and financial condition.

After the events of September 11, 2001, aviation insurers significantly reduced the maximum amount of insurance coverage available to commercial air carriers for liability to persons other than employees or passengers for claims resulting from acts of terrorism, war or similar events (war-risk coverage). At the same time, they significantly increased the premiums for such coverage as well as for aviation insurance in general. As a result, war-risk insurance in amounts necessary for our operations, and at premiums that are not excessive, is not currently available in the commercial insurance market and we have therefore purchased from the U.S. government third-party war-risk insurance coverage. This coverage has been extended by the FAA under the Homeland Security Act to September 30, 2007, after which time it is anticipated that the federal policy will be extended unless insurance for war-risk coverage in necessary amounts is available from independent insurers or a group insurance program is instituted by the U.S. carriers and the DOT. However, there can be no assurance that the federal policy will be renewed or an alternative policy can be obtained in the commercial market at a reasonable cost. Although our overall hull and liability insurance costs have been reduced since the post-2001 increases, there can be no assurances that these reductions would be maintained in the event of future increases in the risk, or perceived risk, of air travel by the insurance industry, or a reduction of capital flows into the aviation insurance market.

We are at risk of losses and adverse publicity in the event of an aircraft accident.

We are exposed to potential losses that may be incurred in the event of an aircraft accident. Any such accident could involve not only the repair or replacement of a damaged aircraft and its consequential temporary or permanent loss of revenue, but also significant potential claims of injured passengers and others. In addition, any aircraft accident or incident could cause a public perception that we are less safe or reliable than other airlines, which would harm our business.

We are at risk of losses in the event of an outbreak of diseases.

Public health threats, such as avian influenza (the Bird Flu), Severe Acute Respiratory Syndrome (SARs) and other highly communicable diseases, outbreaks of which have already occurred in various parts of the world, could adversely impact our operations and the worldwide demand for air travel. In 2003, there was an outbreak of SARS, which primarily had an adverse impact on our Pacific operations. If there were another outbreak of a disease (such as SARS or the Bird Flu) that adversely affects travel behavior, it could have a material adverse impact on our operations.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

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ITEM 2.PROPERTIES.

Aircraft

As of December 31, 2006, our operating fleet consisted of 14 Boeing 767-300ER and one Boeing 767-300 aircraft to service our transpacific, South Pacific and substantially all of our charter routes, and 11 Boeing 717-200 aircraft to service our interisland routes. The following table summarizes our total fleet as of December 31, 2006:

					Seating
					Capacity	Simple
					(Per	Average Age
Aircraft Type	Leased		Owned		Aircraft)	(In Years)
767-300ER		11		3	252-264		8
767-300(a)		—		4	264		20
717-200		11		—	123		6
Total		22		7

(a)Three of the four Boeing 767-300 aircraft were not yet in service as of December 31, 2006.

See Note 7 to our consolidated financial statements for additional information regarding our aircraft lease agreements.

Ground Facilities

Hawaiian’s principal terminal facilities, cargo facilities, hangar and maintenance facilities are located at the Honolulu International Airport (HNL). The majority of the facilities at HNL are leased on a month-to-month basis. Hawaiian is also charged for the use of terminal facilities at the five major interisland airports owned by the State of Hawaii. Some terminal facilities, including gates and holding rooms, are considered by the State of Hawaii to be common areas and thus are not exclusively controlled by Hawaiian. Other facilities, including station managers’ offices, Premier Club lounges and operations support space, are considered exclusive-use space by the State of Hawaii.

Hawaiian has signatory agreements with the Port of Portland and McCarran International Airport, and a facilities sharing agreement with the City of Phoenix for terminal space, and operating agreements with the Port of San Diego, McCarran International Airport in Las Vegas, Nevada, the City of Los Angeles, the County of Sacramento and Societe D’Equipment De Tahiti Et Des Iles (SETIL) for Faa’a International Airport in Papeete, French Polynesia. Hawaiian has a right of entry agreement with the Ted Stevens Anchorage International Airport. Hawaiian is a shareholder in LAX Two in Los Angeles. Hawaiian has ground handling agreements which include office space leases with Delta Air Lines in Portland, Oregon, San Francisco and Sacramento, California; American Airlines in San Jose, California; United Airlines in Anchorage, Alaska; and Penauille Servisair in Las Vegas, Nevada. Hawaiian has a License Agreement with Jet Blue Airlines in San Diego, California and Phoenix, Arizona, for the use of ticket counter space and other operational areas. Hawaiian has lease agreements with the Government of American Samoa in Pago Pago, and Sydney Airport Corporation, Limited, in Sydney, Australia. Hawaiian also has agreements in place for alternate landing sites with the Port of Moses Lake, King County (Boeing Field) in Seattle, Ontario International Airport in California and Fairbanks International Airport in Alaska.

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The table below sets forth the airport locations Hawaiian utilizes pursuant to various lease agreements:

Name of Airport	Location
Ted Stevens Anchorage International Airport	Anchorage	Alaska
Phoenix Sky Harbor International Airport	Phoenix	Arizona
Los Angeles International Airport	Los Angeles	California
Sacramento International Airport	Sacramento	California
San Diego International Airport	San Diego	California
San Francisco International Airport	San Francisco	California
Hilo International Airport	Hilo	Hawaii
Norman Y. Mineta San Jose International Airport	San Jose	California
Honolulu International Airport	Honolulu	Hawaii
Kahului Airport	Kahului	Hawaii
Kona International Airport	Kona	Hawaii
Lihue Airport	Lihue	Hawaii
McCarran International Airport	Las Vegas	Nevada
Portland International Airport	Portland	Oregon
Seattle-Tacoma International Airport	Seattle	Washington
Pago Pago International Airport	Pago Pago	American Samoa
Faa’a International Airport	Papeete	Tahiti
Sydney Airport	Sydney	Australia

Our corporate headquarters are located in leased premises adjacent to the Honolulu International Airport. The lease for this space expires in November 2016. In January 2006, Hawaiian terminated two ticket office leases in Hawaii, one on the island of Oahu and one on the island of Hawaii. In January 2007, we closed our Tokyo sales office. We also lease sales as well as cargo sales offices in San Francisco, Seattle, Los Angeles, Papeete and Tokyo. The leases for these offices expire during 2009.

ITEM 3.LEGAL PROCEEDINGS.

Mesa Air Group

On February 13, 2006, Hawaiian filed a complaint against Mesa Air Group, Inc. (Mesa) in the Bankruptcy Court for the District of Hawaii, Hawaiian Airlines, Inc. v. Mesa Air Group, Inc., Adversary Proceeding No. 06-90026 (Bankr. D. Haw.). The complaint alleges that Mesa misused confidential and proprietary information that was provided by Hawaiian to Mesa in April and May 2004, pursuant to a process that was established by the Bankruptcy Court to facilitate Hawaiian’s efforts to solicit potential investment in connection with a Chapter 11 plan of reorganization. On March 16, 2006, Mesa filed its answer to the complaint and a counterclaim alleging violations of the Sherman Anti-Trust Act, intentional interference with prospective economic advantage and unfair trade practices. Hawaiian filed a motion to dismiss the counterclaim in its entirety, and at a hearing held on May 19, 2006, the Bankruptcy Court dismissed the two state law causes of action but not the antitrust action. Hawaiian subsequently filed a motion for summary judgment to dismiss the remaining antitrust action, and at a hearing on December 8, 2006, and by order (as amended) entered on March 5, 2007, the Bankruptcy Court granted the motion for summary judgment and dismissed that remaining counterclaim. On June 28, 2006, we filed a motion for a preliminary injunction, requesting that the Bankruptcy Court enjoin Mesa for a period of one year from selling or issuing tickets in the interisland market. Following a hearing on September 15, 2006, the Bankruptcy Court issued a decision on October 5, 2006, denying the motion for preliminary injunction. On August 14, 2006, we filed a motion to amend our complaint to add as a defendant the former aviation consultant (Consultant) for Hawaiian Holdings that was retained by Mesa in April 2005 to evaluate the

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Hawaii interisland market. At a hearing held on September 15, 2006, the Bankruptcy Court granted a motion to amend our complaint to add Consultant as a defendant. Mesa and Consultant have since been served with the amended complaint and have filed answers. Trial was scheduled to commence on April 2, 2007. Consultant subsequently filed a motion to postpone the trial date for a period of five months to allow for an opportunity for discovery. That motion was granted by the court and trial has been rescheduled to September 25, 2007.

American Samoa

On July 26, 2006, the Governor of the United States Territory of American Samoa, Togiola Tulafono, issued Executive Order 005-2006 (the Executive Order) regarding Hawaiian’s service to American Samoa. The Executive Order stated that within 90 days of its issuance the government of American Samoa would identify a new air carrier to provide essential air service to American Samoa and would ban Hawaiian from clearing into or out of the territory. On August 11, 2006, Hawaiian filed a Request for Declaratory Ruling from the DOT, seeking a declaration that the Executive Order is preempted by federal law. The public comment period ended on October 31, 2006, with more than 100 comments filed, including a comment by Governor Tulafono. Hawaiian filed a reply to Governor Tulafono’s public comments on November 3, 2006. At this time, the parties await a ruling by the DOT. Governor Tulafono has taken no further actions to implement the Executive Order.

On October 23, 2006, Governor Tulafono filed a complaint with the DOT alleging that Hawaiian had not complied with a 1984 Essential Air Service Order requiring certain levels of service to be provided by Hawaiian to American Samoa. In response to Governor Tulafono’s complaint, Hawaiian has provided the DOT with information on its service patterns for the past year. At the present time, the DOT has taken no action on the complaint, and its outcome and resultant amount of any loss or fine, if any, cannot be predicted.

Chapter 11 Case

On March 23, 2003, Hawaiian filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Hawaii (the Bankruptcy Court). On June 2, 2005, Hawaiian’s plan of reorganization became effective, and Holdings reacquired control of Hawaiian by a transaction accounted for as a business combination. Certain aspects of Hawaiian’s bankruptcy case and reorganization, and Holdings’ reacquisition of Hawaiian are summarized under Item 1. “Business—Consummation of Hawaiian’s Joint Plan of Reorganization.”

We are not a party to any other litigation that is expected to have a significant effect on our operations or business.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of the Company’s security holders during the last quarter of its fiscal year ended December 31, 2006.

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PART II

ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is traded on the American Stock Exchange (Amex) and the Pacific Exchange under the symbol “HA.” The following table sets forth, for the quarters indicated, the range of high and low sales prices of our common stock as reported on the Amex for the periods indicated.

	High		Low
2006
First Quarter	$	5.90	$	3.50
Second Quarter	5.50		2.87
Third Quarter	4.75		2.73
Fourth Quarter	5.40		3.75
2005
First Quarter	$	7.30	$	5.90
Second Quarter	6.83		3.80
Third Quarter	4.74		2.23
Fourth Quarter	4.38		2.42

Holders

There were 1,003 shareholders of record of our common stock as of February 28, 2007, which does not reflect those shares held beneficially or those shares held in “street” name. On February 28, 2007, the closing price reported on the Amex for our common stock was $4.64 per share. Past price performance is not indicative of future price performance.

Dividends and Other Restrictions

We paid no dividends in 2005 or 2006. Restrictions contained in our Term A and Term B Credit Facility financing agreements (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”) and certain of our aircraft lease agreements limit our ability to pay dividends on our common stock.

The Transportation Act prohibits non-U.S. citizens from owning more than 25% of the voting interest of a U.S. air carrier or controlling a U.S. air carrier. Our certificate of incorporation prohibits the ownership or control of more than 25% (to be increased or decreased from time to time, as permitted under the laws of the U.S.) of our issued and outstanding voting capital stock by persons who are not “citizens of the U.S.” As of December 31, 2006, we believe we are in compliance with the Transportation Act as it relates to voting stock held by non-U.S. citizens.

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Stockholder Return Performance Graph

The following graph compares cumulative total stockholder return on our common stock, the S&P 500 Index and the AMEX Airline Index from December 31, 2001 to December 31, 2006. The comparison assumes $100 was invested on December 31, 2001 in our common stock and each of the foregoing indices and assumes reinvestment of dividends before consideration of income taxes. We have paid no dividends on our common stock.

	12/31/2001			12/31/2002			12/31/2003			12/31/2004			12/31/2005			12/31/2006
Hawaiian Holdings Common Stock		$	100		$	51		$	75		$	171		$	100		$	123
S&P 500 Index		100			78			100			111			117			135
AMEX Airline Index(1)		100			44			70			68			62			66

(1)As of December 31, 2006, the AMEX Airline Index consisted of AirTran Holdings Inc., Alaska Air Group Inc., AMR Corporation, Continental Airlines, Inc., ExpressJet Holdings Inc., Frontier Airlines Holdings Inc., JetBlue Airways Corporation,  Mesa Air Group Inc., Sky West Inc., Southwest Airlines Co. and UAL Corporation.

The stock performance depicted in the graph above is not to be relied upon as indicative of future performance. The stock performance graph shall not be deemed to be incorporated by reference into any of our filings under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the same by reference, nor shall it be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulations 14A or 14C or to the liabilities of Section 18 of the Exchange Act.

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Equity Compensation Plan Information

The following table provides the specified information as of December 31, 2006 with respect to compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance, aggregated by all compensation plans previously approved by our security holders, and by all compensation plans not previously approved by our security holders:

Plan Category(1)	Number of securities to be issued upon exercise of outstanding options		Weighted-average exercise price of outstanding options			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in first column)
Equity compensation plans approved by security holders		2,914,384		$	4.21		4,259,616
Equity compensation plans not approved by security holders		none		—			none
Total		2,914,384		$	4.21		4,259,616

(1)Table does not include 1.5 million shares of our common stock, of which 274,700 shares and 608,100 shares were distributed to Hawaiian’s employees pursuant to the Hawaiian Airlines, Inc. Stock Bonus Plan in February 2006 and May 2006, respectively. The remaining 617,200 shares will be distributed in May 2007.

Hawaiian Airlines, Inc. Stock Bonus Plan

On June 2, 2005, we adopted the Hawaiian Airlines, Inc. Stock Bonus Plan, under which 1.5 million shares of our Common Stock were to be granted to certain Hawaiian employees as compensation for services previously rendered and to be rendered through December 31, 2006. On February 15, 2006 and May 1, 2006, 274,700 and 608,100 of the shares, respectively were distributed to Hawaiian’s employees, which shares had a fair value of approximately $1.6 million and $2.4 million, respectively, based on the closing market price per share on June 2, 2005. The remaining 617,200 shares are expected to be distributed to Hawaiian’s employees in May 2007, based upon the employee’s pro rata share of W-2 wages for the year ended December 31, 2006.

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ITEM 6.SELECTED FINANCIAL DATA.

The Selected Financial Data should be read in conjunction with our accompanying audited consolidated financial statements and the notes related thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

Hawaiian Holdings, Inc.
Selected Financial Data

	Year ended December 31,
	2006			2005(a)			2004(b)			2003(c)			2002
	(in thousands, except per share data)
Summary of Operations:
Operating revenue(d)	$	888,047		$	508,767		$	—		$	157,643		$	633,973
Operating expenses(d)(e)	884,877			506,737			7,266			172,736			690,052
Operating income (loss)(e)	3,170			2,030			(7,266		)	(15,093		)	(56,079		)
Net loss(e)(f)	(40,547		)	(12,366		)	(7,262		)	(16,998		)	(58,275		)
Net Loss Per Common Stock Share:
Basic	$	(0.86	)	$	(0.31	)	$	(0.24	)	$	(0.60	)	$	(1.88	)
Diluted	(0.86		)	(0.31		)	(0.24		)	(0.60		)	(1.88		)
Weighted Average Number of
Common Stock Shares Outstanding:
Basic	47,153			39,250			29,651			28,435			31,024
Diluted	47,153			39,250			29,651			28,435			31,024
Common Shares Outstanding at End of Year	46,584			45,349			30,751			28,459			28,350
Balance Sheet Items:
Total assets	$	819,953		$	666,520		$	2,844		$	862		$	256,166
Property and equipment, net	272,614			51,277			—			—			45,685
Long-term debt and capital lease obligations, excluding current maturities	238,381			77,576			—			—			3,241
Shareholders’ equity (deficiency)	83,637			48,067			(61,292		)	(63,731		)	(142,610		)

(a)Includes the deconsolidated results of Holdings for the period January 1, 2005 through June 1, 2005, and the consolidated results of Holdings and Hawaiian for the period June 2, 2005 through December 31, 2005.

(b)Includes only the deconsolidated results of Holdings for the year ended December 31, 2004.

(c)Includes the consolidated results of Holdings and Hawaiian for the period January 1, 2003 through March 31, 2003, and the deconsolidated results of Holdings for the period April 1, 2003 through December 31, 2003.

(d)For 2002, overall operating revenue and expenses were significantly unfavorably impacted by the events of September 11, 2001.

(e)For 2002, operating expenses included an $8.7 million restructuring charge related to the accelerated retirement of DC-10 aircraft and the sale of DC-9 aircraft and parts.

(f)For 2005 and 2006, losses due to redemption, prepayment, extinguishment and modification of long-term debt and lease agreements were $4.2 million and $34.8 million, respectively.

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Hawaiian Airlines, Inc.
Selected Financial Data

	Period
	January 1, 2005
	through				Year ended December 31,
	June 1, 2005				2004			2003			2002
	(in thousands)
Summary of Operations:
Operating revenue(a)(b)		$	321,150		$	769,294		$	708,799		$	633,973
Operating expenses(a)(b)		309,080			698,211			631,321			689,222
Operating income (loss)		12,070			71,083			77,478			(55,249		)
Net loss		(2,706		)	(75,440		)	(49,513		)	(57,445		)
Balance Sheet Items:
Total assets		$	372,980		$	334,205		$	328,371		$	256,996
Property and equipment, net		59,844			51,539			45,991			45,685
Long-term debt and capital lease obligations, excluding current maturities		25,295			33			—			3,241
Shareholders’ deficiency		(321,739		)	(293,108		)	(209,231		)	(141,780		)

(a)For 2002, overall operating revenue and expenses were significantly unfavorably impacted by the events of September 11, 2001.

(b)For 2003, operating expenses included a $17.5 million special credit for financial assistance received from the federal government under the Emergency Wartime Supplemental Appropriations Act for reimbursement of airline security fees. For 2002, operating expenses included an $8.7 million restructuring charge related to the accelerated retirement of DC-10 aircraft and the sale of DC-9 aircraft and parts.

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks and uncertainties. We have based these forward-looking statements on our current expectations and projections of future events. However, our actual results could differ materially from those discussed herein as a result of the risks that we face, including but not limited to those risks stated in “Risk Factors.” In addition, the following discussion should be read in conjunction with the audited consolidated financial statements and the related notes thereto included elsewhere in this report.

Overview

We are a holding company incorporated in the State of Delaware. Our primary asset is our sole ownership of all issued and outstanding shares of common stock of Hawaiian. Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii. Hawaiian became a Delaware corporation and our direct wholly-owned subsidiary concurrent with its reorganization and reacquisition by the Company in June 2005 as described in greater detail in Note 2 to our financial statements included in this Annual Report on Form 10-K.

Hawaiian is primarily engaged in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands (the interisland market) and between the Hawaiian Islands and certain cities in the Western United States (the transpacific market), the South Pacific and Australia (the South Pacific market). Based on the total number of miles flown by revenue passengers during 2006, Hawaiian was the largest airline headquartered in Hawaii and the seventeenth largest domestic airline in the United States. At December 31, 2006, Hawaiian’s operating fleet consisted of 11 leased Boeing 717-200 aircraft for its interisland routes and 15 Boeing 767-300 aircraft for its transpacific, South Pacific and charter routes. Additionally, three used Boeing 767-300 aircraft that Hawaiian purchased in the first quarter of 2006 were in the process of being overhauled and modified as of December 31, 2006. Based in Honolulu, Hawaiian had 3,454 active employees as of December 31, 2006.

Although 2006 passenger revenue increased from 2005 to 2006 as a result of increased traffic and increased yields, many factors continue to threaten our current yields and growth strategies. In the transpacific market, Hawaiian has in the past been largely insulated from direct competition from low cost carriers or LCCs. Most LCCs have lacked the fleet and infrastructure necessary to provide long-haul trans-oceanic service. The Hawaii market has, however, in recent years, seen growing LCC competition from carriers such as ATA and US Airways. ATA offers service to Hawaii from a number of West Coast markets and enjoys a marketing and code sharing relationship with Southwest Airlines providing access to Southwest’s customer base and website. US Airways has positioned its business as a low cost carrier following its emergence from bankruptcy and combination with America West Airlines and commenced service to Hawaii at the end of 2005. We also face the threat of more LCC competition in the future. Furthermore, a more fundamental and immediate consequence for us of the proliferation of LCCs is the response from network carriers, who are meeting the competition from LCCs by significantly reducing costs and adjusting their route networks to divert resources to long-haul markets such as Hawaii, where LCC competition is less severe. The result is that the network carriers have at the same time reduced their costs of operation and increased capacity in the Hawaii market. Additional capacity to Hawaii, whether from network carriers or LCCs, could result in a decrease in our share of the transpacific market, a decline in our transpacific yields, or both, which could have a material adverse effect on our results of operations and financial condition.

In response to the strong customer demand for our services, during 2006 we increased capacity to certain of the U.S. West Coast cities we presently serve and will continue to increase capacity in 2007. This

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expansion began in September 2006 with the entry into service of the first of the four Boeing 767-300 aircraft we acquired in the first quarter of 2006. The second and third aircraft were placed into service in January and March 2007, respectively, and the remaining aircraft is expected to be in service by May 2007. We believe that the combination of our increased schedule, our competitive fares and superior customer service will enable us to continue to be an effective competitor in the transpacific market. However, there are no assurances that potential downward pressures on our yields and load factors in the transpacific market due to either weakness in the overall economy and consumer spending and/or capacity increases by Hawaiian and/or its competitors will not negatively and materially impact our future revenue in that market.

In the interisland market, we currently face competition principally from three other airlines, Aloha Airlines (which was recapitalized upon its emergence from bankruptcy in February 2006), Mesa Airlines (Mesa) which operates under the brand name go!, and Island Air. On June 9, 2006, go! began interisland service and by February 28, 2007, go! was operating approximately 60 daily flights in this market. Additionally, Mesa has indicated in recent public comments its intention to increase capacity in the interisland market during 2007. Mesa’s entry into the interisland market initiated significant fare discounting, which was the primary reason for a $2.6 million decrease in passenger revenue in our interisland market for the year ended December 31, 2006 compared to the same period in 2005. The additional interisland capacity provided by Mesa Airlines together with the improved competitive position of the recapitalized Aloha Airlines have had a significant negative impact on our interisland yields and ultimately our financial condition. We cannot reasonably predict the long-term effects on our results of operations and financial condition from Mesa’s continued presence and possible expansion in the interisland market, and/or from any other potential actions by our other interisland competitors.

In order to effectively compete in the markets that we serve, we are committed to managing down our controllable costs. During 2006, we initiated a top-to-bottom review of a variety of third party spending categories, including the areas of ground handling, catering and insurance. We expect annual future savings of approximately $6.5 million from these areas specifically. During the summer of 2006, we signed a Letter of Agreement with the IAM which allows us to outsource reservations, accounting and certain other back office functions in return for job protection to the employees in those areas. During early 2007, we selected vendors for the areas of reservations and accounting and have offered voluntary separation packages to those employees whose positions will be affected in those areas. However, there continue to be certain costs that are more difficult to mitigate. Due to a variety of factors, including the aging of our fleet, additional fleet utilization, the growth of our fleet, including the introduction into our fleet of the four used Boeing 767-300 acquired in early 2006, the expiration of manufacturers’ warranties on certain aircraft and increased costs for related materials and services, we expect growing costs in the area of maintenance of our aircraft in future years, including 2007. Furthermore, although fuel prices have declined from record highs during 2006, future increases in jet fuel prices or disruptions in fuel supplies could have a material adverse effect on our results of operations.

Prior to the commencement of Hawaiian’s bankruptcy proceeding in March 2003, we consolidated Hawaiian. Following Hawaiian’s bankruptcy filing, effective April 1, 2003, we deconsolidated Hawaiian and prospectively accounted for our ownership interest in Hawaiian using the cost method of accounting. Our results of operations, therefore, do not include Hawaiian’s operating results during the period from April 1, 2003 through June 1, 2005. During the period April 1, 2003 through June 1, 2005, we generated no operating revenue, and our operating expenses consisted almost entirely of legal and professional fees related to Hawaiian’s Chapter 11 case, other legal and accounting fees, and other corporate expenses. Those expenses were $7.3 million for the year ended December 31, 2004 and $3.0 million for the period January 1, 2005 through June 1, 2005, prior to the reacquisition of Hawaiian. On June 2, 2005, the effective date of Hawaiian’s joint plan of reorganization, we reconsolidated Hawaiian for financial reporting purposes. Hawaiian’s emergence from bankruptcy has been accounted for as a business combination (the

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acquisition of Hawaiian by us), with the assets and liabilities of Hawaiian recorded in our consolidated financial statements at their fair value as of June 2, 2005, and the results of operations of Hawaiian included in our consolidated results of operations from June 2, 2005. However, given the significance of Hawaiian’s results of operations to our future results of operations and financial condition, as well as the extremely limited nature of our operations during the periods we deconsolidated Hawaiian, our historical results of operations and those of Hawaiian have been combined for the periods we did not consolidate Hawaiian and are discussed below with our consolidated results of operations for the periods we consolidated Hawaiian in order to provide a more informative comparison of results for those periods.

Results of Operations

We incurred a net loss of $40.5 million ($0.86 per basic and diluted common stock share) on operating income of $3.2 million for the year ended December 31, 2006. Our results of operations were significantly and adversely affected by increases in our cost of jet fuel, maintenance materials and repairs and by nonoperating charges we incurred in connection with the redemption, extinguishment, modification and prepayment of certain long-term debt we issued in June 2005 to help fund Hawaiian’s joint plan of reorganization and lease agreements on our certain of our aircraft and spare engine leases. The cost of jet fuel is the single largest component of our operating expenses representing approximately 27.3% (or $241.7 million) of our total operating expenses for the year ended December 31, 2006. In addition, the cost of maintenance, materials and repairs increased by $12.3 million from 2005 to 2006 due to the aging and increased utilization of our fleet as well as the expansion of our fleet in 2006. During the year ended December 31, 2006, we incurred nonoperating charges of $34.8 million related to our redemption in April 2006 of the Notes we issued in June 2005, the extinguishment and modification in March 2006 of the two secured credit facilities Hawaiian entered into in June 2005, a prepayment in July 2006 under one of the credit facilities amended in March 2006 and the write-off of lease-related intangible assets and unfavorable lease liabilities on aircraft and spare engine leases upon termination and modification of the leases in December 2006. Additionally, our pretax loss was negatively impacted by amortization and other continuing effects associated with recording Hawaiian’s assets and liabilities at their fair values upon our reacquisition of Hawaiian on June 2, 2005.

Despite increased competition in all of our markets, and particularly in our interisland and transpacific markets, our system-wide yield for the year ended December 31, 2006 increased to 11.65 cents from 11.32 cents for the year ended December 31, 2005. Passenger load factor, however, for the year ended December 31, 2006 decreased to 86.4% compared to 87.6% for 2005. Capacity increased by 326.4 million available seat miles flown (4.2%) for the year ended December 31, 2006 compared to 2005.

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Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.
Combined Statements of Operations

	Year ended December 31,
	2006(*)			2005(**)			2004(**)
	(in thousands)
Operating Revenue:
Passenger	$	796,821		$	747,957		$	699,497
Cargo	32,181			31,022			30,579
Charter	9,486			11,931			7,280
Other	49,559			42,689			31,938
Total	888,047			833,599			769,294
Operating Expenses:
Aircraft fuel, including taxes and oil	241,660			201,212			135,946
Wages and benefits	228,010			227,117			227,332
Aircraft rent	109,592			107,260			106,090
Maintenance materials and repairs	69,606			57,342			49,246
Aircraft and passenger servicing	52,655			48,283			41,960
Commissions and other selling	48,575			52,460			45,287
Depreciation and amortization	28,865			19,705			8,122
Other rentals and landing fees	25,720			23,819			23,984
Other	80,194			82,301			67,510
Total	884,877			819,499			705,477
Operating Income	3,170			14,100			63,817
Nonoperating Income (Expense):
Reorganization items, net	—			887			(129,520		)
Interest and amortization of debt discounts and issuance costs	(17,476		)	(9,495		)	(1,030		)
Losses due to redemption, prepayment, extinguishment and modification of long-term debt and lease agreements	(34,798		)	(4,214		)	—
Interest income	11,338			4,658			4
Capitalized interest	3,769			—			—
Other, net	(7,013		)	20,404			843
Total	(44,180		)	12,240			(129,703		)
Income (Loss) Before Income Taxes	(41,010		)	26,340			(65,886		)
Income tax expense (benefit)	(463		)	41,412			16,816
Net Loss	$	(40,547	)	$	(15,072	)	$	(82,702	)

(*)Consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.

(**)Combined results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.

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Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.
Selected Combined Statistical Data (unaudited)

	Year ended December 31,
	2006			2005			2004
	(in thousands, except as otherwise indicated)
Scheduled Operations:
Revenue passengers flown	6,156			5,781			5,580
Revenue passenger miles (RPM)	6,838,852			6,607,210			6,134,248
Available seat miles (ASM)	7,915,874			7,539,946			7,150,652
Passenger load factor (RPM / ASM)	86.4		%	87.6		%	85.8		%
Passenger revenue per RPM (Yield)	11.65		¢	11.32		¢	11.40		¢
Charter Operations:
Revenue block hours operated (actual)	1,191			1,574			937
Revenue per revenue block hour	$	8.0		$	7.6		$	7.8
Cargo Operations:
Revenue ton miles (RTM)	72,716			83,973			85,983
Revenue per RTM	37.58		¢	31.86		¢	31.20		¢
Total Operations:
Operating revenue per ASM	11.02		¢	10.78		¢	10.59		¢
Operating cost per ASM	10.98		¢	10.59		¢	9.71		¢
Revenue passengers flown	6,203			5,840			5,615
Revenue block hours operated (actual)	85,933			81,162			77,264
RPM	6,964,991			6,767,692			6,226,477
ASM	8,062,121			7,735,768			7,264,811
Breakeven load factor(a)	89.1		%	87.1		%	94.4		%
Gallons of jet fuel consumed	114,236			111,220			104,911
Average cost per gallon of jet fuel (actual)(b)	$	2.12		$	1.81		$	1.30

(a)The scheduled passenger load factor required at the current yield to breakeven with operating expenses (or Operating cost per ASM divided by the Yield).

(b)Includes applicable taxes and fees.

Holdings’ reacquisition of Hawaiian on June 2, 2005 was accounted for as a business combination, and the assets and liabilities of Hawaiian were recorded at fair value as of that date. The changes in the book values of Hawaiian’s assets and liabilities as of June 2, 2005 affected consolidated income (loss) before income taxes for the year ended December 31, 2006 and the period from June 2, 2005 through December 31, 2005, most significantly through an increase in depreciation and amortization of $17.4 million and $10.1 million, respectively. For the purposes of the following discussion, the term “the combined entity” refers to the combined results of operations of Holdings and Hawaiian. As used in the context of this narrative, “Holdings” and “Hawaiian” refer to Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. in their individual capacities

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Year ended December 31, 2006 Compared to Year ended December 31, 2005

On a consolidated basis, we incurred a net loss of $40.5 million and had operating income of $3.2 million for the year ended December 31, 2006, compared to a net loss of $15.1 million and operating income of $14.1 million for the combined entity for the year ended December 31, 2005. Operating income decreased by $10.9 million in 2006, or 77.5%, compared to 2005 due primarily to increases in fuel, maintenance, depreciation and amortization, and aircraft and passenger servicing expenses. The net loss incurred in 2006 increased by $25.5 million compared to the net loss of $15.1 million in 2005 principally due to $35.7 million of special charges incurred in 2006 related to the redemption, prepayment, extinguishment and modification of various long-term instruments and the aircraft purchase and lease amendment transactions executed in December 2006. Of the $35.7 million, $0.9 million represents operating expenses, with the remainder reflected in nonoperating expense. Special charges in 2005 totaled $4.2 million related to the redemption of debt. Other significant differences between income and expense items for the years ended December 31, 2006 and 2005 are discussed below.

Operating Revenue.   Operating revenue was $888.0 million for the year ended December 31, 2006, a 6.5% increase over operating revenue of $833.6 million for the combined entity in 2005. Significant year-over-year changes leading to the increase in 2006 operating revenue are discussed below.

Scheduled passenger revenue was $796.8 million in 2006 compared to scheduled passenger revenue of $748.0 million in 2005. This $48.9 million or 6.5% increase in scheduled passenger revenue was principally due to improvements in the yields of our transpacific and South Pacific markets and traffic in our transpacific and interisland markets, which more than offset a decline in the yields in our interisland market brought about by the entry of go! into that market in June 2006 and the resultant fare discounting that occurred during subsequent months.

	Change in
	scheduled
	passenger				Change in			Change in			Change in
	revenue				Yield			RPM			ASM
	(millions)
Transpacific		$	47.8			5.6	%		4.2	%		6.2	%
South Pacific		3.8				11.8			(8.8	)		(8.7	)
Interisland		(2.7		)		(9.7	)		9.4			10.0
Total scheduled		$	48.9			2.9	%		3.5	%		5.0	%

Other operating revenue was $91.2 million for the year ended December 31, 2006, and $85.6 million for the comparable period in 2005. The $5.6 million, or 6.5%, increase in other operating revenue was due primarily to increases in ticket change fees, ground handling services provided to other airlines, and commissions and fees earned under certain joint marketing agreements with other companies.

Operating Expenses.   Operating expenses were $884.9 million for the year ended December 31, 2006, a $65.4 million increase from operating expenses of $819.5 million in 2005. The net increase in operating expenses in 2006 was due primarily to increases in aircraft fuel and maintenance, depreciation and amortization and aircraft and passenger servicing expenses.

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	Year ended December 31, 2006			Change from Year ended December 31, 2005				Percent change
		(in thousands)
Operating expenses
Aircraft fuel, including taxes and oil		$	241,660		$	40,448			20.1	%	(a)
Wages and benefits		228,010			893				0.4
Aircraft rent		109,592			2,332				2.2		(b)
Maintenance materials and repairs		69,606			12,264				21.4		(c)
Aircraft and passenger servicing		52,655			4,372				9.1		(d)
Commissions and other selling expenses		48,575			(3,885		)		(7.4	)	(e)
Depreciation and amortization		28,865			9,160				46.5		(f)
Other rentals and landing fees		25,720			1,901				8.0		(g)
Other		80,194			(2,107		)		(2.6	)	(h)
Total		$	884,877		$	65,378			8.0	%

(a)The increase in aircraft fuel expense was primarily due to a 17.1% increase in the cost of jet fuel to an average of $2.12 per gallon in 2006 compared to an average of $1.81 per gallon in 2005. The average cost of jet fuel in 2006 and 2005 includes hedging losses of $0.9 million and $2.2 million, respectively, and fuel related taxes. Fuel consumption increased by less than 3.0% during the year ended December 31, 2006 even though we flew 4.2% more ASM’s and operated 5.9% more revenue block hours compared to 2005. These efficiency improvements were due mostly to fuel conservation programs we initiated in 2006. Our jet fuel operating expense in a particular period will reflect the spot price for jet fuel during that period, applicable fuel taxes, the cost of delivery to airports and the recognition of fuel hedge gains or losses for the designated period. As a result of the designation of jet fuel forward contracts during 2005 for consumption in 2006 at times when spot prices were generally higher than the settlement price of the contracts, our reported fuel expense during 2006 does not reflect the actual economic benefit of the forward contracts or the cash savings achieved by Hawaiian.

As illustrated below, Hawaiian’s average fuel expense per gallon for the year ended December 31, 2006 was $2.12, as a result of prevailing spot prices, taxes and the impact of jet fuel hedges designated for the quarter.

	Per Gallon
	Average			Aggregate
				(millions)
Spot Price (including delivery)		$	2.01		$	229.9
Taxes		0.10			10.8
Hedge Impact		0.01			0.9
Fuel Expense		$	2.12		$	241.6

Although the hedge impact on our jet fuel expense resulted in a reduction in operating income for the year ended December 31, 2006, the settlement of the associated fuel forward contracts resulted in cash savings by Hawaiian of $7.2 million. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk, for additional discussion of our jet fuel costs and related hedging program.

(b)The increase in aircraft rent expense is mainly due to the amortization of an intangible asset related to favorable aircraft leases recorded upon Hawaiian’s emergence from of bankruptcy. The increase in the monthly rental expense recognized after emergence resulted in a year over year increase of $1.4 million. Additionally, $0.9 million was expensed in 2006 related to maintenance deposits which we determined were not probable of being recovered through future maintenance. See Note 3 to our consolidated financial statements and Critical Accounting Policies for a discussion of our accounting for maintenance deposits.

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(c)The increase in maintenance materials and repairs expense was due primarily to increased costs incurred under power-by-the-hour (PBH) maintenance contracts for Boeing 767-300ER and Boeing 717-200 aircraft engines and other Boeing 767 and Boeing 717 aircraft components (e.g., auxiliary power units), and to increases in the number of Boeing 767 airframe and Boeing 717 landing gear overhauls performed during 2006 compared to 2005. The increase in expenses incurred under the PBH maintenance contracts was due in turn to the inclusion of additional Boeing 767 engines, increased hourly charges and increased utilization for our aircraft (approximately 5.9% more block hours were operated in 2006 compared to 2005). We expect aircraft maintenance expenses to continue to increase in subsequent years due to a variety of factors, including the aging of our fleet, additional fleet utilization, the growth of our fleet, including the introduction into our fleet of the four used Boeing 767-300 acquired in early 2006, the expiration of manufacturers’ warranties on certain aircraft and increased costs for related materials and services. As more fully discussed in Note 3 to our consolidated financial statements and Critical Accounting Policies, we have made deposits to our aircraft lessors to cover a portion of our future maintenance costs. However, because these payments are recorded as a deposit, to the extent recoverable through future maintenance, and then recognized as maintenance expense when the underlying maintenance is performed, they do not impact the timing of our recognition of maintenance expense, which is recognized as expense when incurred. Maintenance deposits totaled $32.5 million ($28.1 million, net of unamortized fair value adjustments recorded in purchase accounting) as of December 31, 2006. The estimated maintenance reserve deposits to be paid to lessors and the estimated amounts to be reimbursed and charged to expense upon performance of the related maintenance, based on currently scheduled maintenance, are set forth in the following table (in thousands):

	2007		2008		2009		2010		2011
Deposits	$	7,000	$	6,174	$	6,150	$	5,668	$	5,289
Reimbursements	7,986		152		6,965		5,505		1,187

These estimates are subject to significant variation, including, among others, the actual cost to complete the maintenance, timing and extent of the maintenance, aircraft cycles impacting the timing, and the imposition of potential new maintenance requirements.

(d)The increase in aircraft and passenger servicing expense was due to an increase of $2.9 million in passenger inconvenience expense. This is primarily due to the issuances of transportation credit orders and vouchers for meals and hotels incurred during the fourth quarter of 2006 as a result of the delay in placing the remaining three of the four purchased Boeing 767 aircraft into service during the fourth quarter of 2006 as initially scheduled.

(e)The decrease in commissions and other selling expenses was primarily due to a decrease in our frequent flyer liability due to a decrease in the incremental cost per mile. This decrease was partially offset by an increase in sales commissions and credit card fees related to increased sales. In an effort to minimize commission expense in the future, we plan to continue efforts to increase passenger sales through our own reservations agents and website and other Internet channels.

(f)The increase in depreciation and amortization expense is primarily attributable to the amortization of certain intangible assets recorded upon the reacquisition of Hawaiian by Holdings at June 2, 2005. Future depreciation expense will increase due to the purchase of three previously-leased Boeing 767-300ER aircraft from AWMS I, an affiliate of AWAS (formerly Ansett Aviation Services, Inc. and, along with its affiliates, including AWMS I, collectively referred to herein as “AWAS”) in late December 2006 and the placement into service in early 2007 of three additional Boeing 767-300 aircraft purchased in 2006. The three Boeing 767-300 aircraft purchased from AWAS were previously leased and therefore, future aircraft rent expense will decrease.

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(g)The increase in other rentals and landing fees expense was due to a change in our third-party agreement for our ground handling services at the Seattle-Tacoma International Airport in Seattle, Washington for which, effective October 2006, we pay the gate and lobby rental charges separate from our ground handling agreement. This increase is offset by a decrease in ground handling fees related to this change. In addition, there was an increase in landing fees due to an 8% increase in the number of flights, and an increase in rent expense due to increased maintenance and operations fees associated with the Los Angeles Airport Terminal.

(h)The decrease in other operating expense was due primarily to a decrease in professional fees relating to compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and Hawaiian’s reorganization, as well as a decrease in our hull and liability insurance. Those decreases were partially offset by increases in professional fees relating to our sourcing and outsourcing initiatives.

Nonoperating Income and Expense.   Net nonoperating expense was $44.2 million for the year ended December 31, 2006, compared to net nonoperating income of $12.2 million for the same period in 2005. The year ended December 31, 2006 included $34.8 million of special charges related to the redemption, prepayment, extinguishment and modification of various long-term instruments and the aircraft purchase and lease amendment transactions executed in December, $17.5 million of interest expense and amortization of debt discounts and issuance costs, and a $7.3 million loss related to the portion of the change in fair value of Hawaiian’s jet fuel forward contracts excluded from hedge effectiveness, offset by interest income of $11.3 million and $3.8 million of capitalized interest. The year ended December 31, 2005 included realized and unrealized gains of $19.2 million related to jet fuel forward contracts that did not qualify for hedge accounting, a $2.5 million gain related to the portion of the change in fair value of Hawaiian’s jet fuel forward contracts excluded from hedge effectiveness, and interest income of $4.7 million, offset by interest expense of $9.5 million due primarily to the indebtedness incurred to fund the Joint Plan and a special charge of $4.2 million on the repurchase of $7.7 million of the Notes.

Income Tax Expense.   On a consolidated basis, the Company recorded an income tax benefit of $0.5 million for the year ended December 31, 2006, a $41.9 million, or 101.1%, decrease from combined income tax expense of $41.4 million for the comparable period in 2005. The unusual effective rate for the year ended December 31, 2006 was primarily due to the non-deductibility of certain expenses we incurred in connection with the redemption of the remainder of the Notes in April 2006. The tax provision and unusual effective tax rate we experienced in 2005 were due to a significant increase in book-tax timing differences, which resulted in higher taxable income on the Company’s tax returns, while the offsetting deferred tax asset (representing the value of the future tax deduction when the timing differences “turn” and are recognized in our tax returns) must be fully offset by a valuation allowance given our history of operating losses and Hawaiian’s recent bankruptcy. The impact of these book-tax timing differences was dramatically increased by the application of purchase accounting upon Hawaiian’s emergence from bankruptcy on June 2, 2005, which resulted in fair value adjustments to the book basis of Hawaiian’s assets and liabilities, but had no impact on the corresponding tax basis in those assets and liabilities. Furthermore, while the consummation of the Joint Plan triggered significant tax deductions related to the payment of the lease deficiency claims of Hawaiian, the benefit of those deductions was recorded as a reduction to goodwill, not the provision for income taxes, because the deductions related to transactions originally occurring prior to the point at which Hawaiian was consolidated by the Company. We expect these book-tax timing differences to have a negative impact on our effective tax rate for 2007 as well.

Year ended December 31, 2005 Compared to Year ended December 31, 2004

The combined entity incurred a net loss of $15.1 million and had operating income of $14.1 million for the year ended December 31, 2005, compared to a net loss of $82.7 million and operating income of $63.8 million for the comparable period in 2004. Operating income decreased by $49.7 million in 2005, or 77.9%, compared to 2004 due primarily to increases in 2005 in fuel, depreciation and amortization and

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other operating expenses, whereas the net loss incurred in 2005 decreased by $67.6 million principally because of $129.5 million of nonoperating expenses incurred in 2004 related to Hawaiian’s bankruptcy and reorganization. Other significant differences between income and expense items for the years ended December 31, 2005 and 2004 are discussed below.

Operating Revenue.   Operating revenue was $833.6 million for the year ended December 31, 2005, an 8.4% increase over operating revenue of $769.3 million in 2004. The application of purchase accounting upon the reacquisition of Hawaiian by Holdings on June 2, 2005 resulted in a non-cash decrease of approximately $9.7 million in operating revenue in 2005. Other significant year-over-year changes leading to the increase in 2005 operating revenue are discussed below.

Scheduled passenger revenue was $748.0 million in 2005 compared to scheduled passenger revenue of $699.5 million in 2004. This $48.5 million, or 6.9%, increase in scheduled passenger revenue was due to improved traffic in all of Hawaiian’s markets as is shown in the table immediately below reflecting strong demand for travel to and from Hawaii and positive customer response to Hawaiian’s service levels and operational performance.

	Change in
	scheduled
	passenger			Change in			Change in			Change in
	revenue			Yield			RPM			ASM
	(millions)
Transpacific		$	26.7		(0.1	)%		6.1	%		3.1	%
South Pacific		15.1			5.3			34.7			33.6
Interisland		6.7			0.1			3.1			1.3
Total scheduled		$	48.5		(0.7	)%		7.7	%		5.4	%

Other operating revenue was $85.6 million for the year ended December 31, 2005, and $69.8 million for the comparable period in 2004. The $15.8 million or 22.7% increase in other operating revenue was due primarily to increases of $4.7 million in charter revenue, due in turn to a 68.0% increase in charter revenue block hours operated, and $10.8 million in other operating revenue due primarily to increases in ground handling services provided to other airlines, ticket change fees, and commissions and fees earned under certain joint marketing agreements with other companies.

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Operating Expenses.   Operating expenses were $819.5 million for the year ended December 31, 2005, a $114.0 million increase from operating expenses of $705.5 million for the prior year. The net increase in operating expenses in 2005 was due primarily to increases in aircraft fuel and maintenance, depreciation and amortization and other operating expenses. As discussed above, the application of purchase accounting upon the reacquisition of Hawaiian by Holdings on June 2, 2005 resulted in an increase of approximately $5.7 million in non-cash operating expenses in 2005.

	Year ended December 31, 2005			Change from Year  ended December 31, 2004				Percent  change
	(in thousands)
Operating expenses
Aircraft fuel, including taxes and oil		$	201,212		$	65,266			48.0	%	(a)
Wages and benefits		227,117			(215		)		(0.1	)	(b)
Aircraft rent		107,260			1,170				1.1
Maintenance materials and repairs		57,342			8,096				16.4		(c)
Aircraft and passenger servicing		48,283			6,323				15.1		(d)
Commissions and other selling expenses		52,460			7,173				15.8		(e)
Depreciation and amortization		19,705			11,583				142.6		(f)
Other rentals and landing fees		23,819			(165		)		(0.7	)
Other		82,301			14,791				21.9		(g)
Total		$	819,499		$	114,022			16.2	%

(a)The increase in fuel expense was due mostly to a 39.2% increase to an average of $1.81 per gallon for the cost of jet fuel in 2005 compared to an average of $1.30 per gallon for jet fuel in 2004. The average cost of jet fuel in 2005 and 2004 includes hedging losses of $4.2 million and gains of $2.1 million, respectively, and fuel related taxes. Additionally, overall increases in flight operations in 2005 (particularly in the long-haul transpacific and South Pacific markets) led to an approximate 6.0% increase in fuel consumed in 2005 compared to the prior year.

(b)The increase in wages and benefits for 2005 was due primarily to $4.0 million of compensation expense associated with 887,350 shares of Holdings common stock granted, or to be granted, to Hawaiian’s employees under the Hawaiian Airlines, Inc. Stock Bonus Plan for services provided through December 31, 2005. Expenses related to employee benefits decreased by $5.2 million in 2005 compared to 2004 due primarily to revaluations of Hawaiian’s pension and postretirement benefits obligations at June 2, 2005. Other net increases in salaries and wages, principally for Hawaiian’s AFA employees, contributed to the overall net increase in wages and benefits expense in 2005 compared to 2004. Hawaiian currently has contracts with its three largest organized labor groups, ALPA, AFA and IAM, through June 30, 2007, November 1, 2007 and March 31, 2008, respectively, when these contracts next become amendable.

(c)The increase in maintenance materials and repairs expense was due primarily to increased expenses incurred for the major airframe maintenance of certain older Boeing 767-300 aircraft and one Boeing 767 aircraft engine, and to the inclusion of additional aircraft engines under a power-by-hour maintenance contract under which fees are assessed on the hours the engines subject to this contract are utilized. Also, Hawaiian operated approximately 3.9 thousand, or 5.0%, more revenue block hours in 2005 than in 2004, which increased aircraft utilization contributed to the overall year-over-year increase in aircraft maintenance. Maintenance expense in 2005 also included $0.8 million of amortization expense attributable to favorable aircraft maintenance contracts recognized at June 2, 2005.

(d)The increase in aircraft and passenger servicing was primarily due to an increase in ground handling services mainly resulting from an increase in flights and passengers (Sydney, Australia service began in

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May 2004), an increase in security services resulting from an additional assessment from the TSA in 2005, an increase in interrupted trips expense, and an increase in expenses related to on-board digeplayers that were added in late 2004.

(e)The increase in commissions and other selling expense was primarily due to an increase in credit card fees resulting from increased credit card ticket sales as well as an increase in frequent flyer expenses associated with the growth of the HawaiianMiles program. Commission expense increased due to the increase in passenger revenues and to incentives paid to certain travel agencies to promote Hawaiian’s service to Sydney, Australia, which service began in May 2004.

(f)The increase in depreciation and amortization expense was due almost entirely to the amortization of certain intangible assets recorded upon the reacquisition of Hawaiian by Holdings at June 2, 2005.

(g)The increase in other operating expense was due primarily to professional fees relating to compliance with Section 404 of the Sarbanes-Oxley Act of 2002, Hawaiian’s reorganization, and other financial accounting and auditing services.

Nonoperating Income and Expense.   Net nonoperating income was $12.2 million for the year ended December 31, 2005, compared to net nonoperating expense of $129.7 million for the same period in 2004. The year ended December 31, 2005 included a $2.5 million gain related to the portion of the change in fair value of Hawaiian’s jet fuel forward contracts excluded from hedge effectiveness, realized and unrealized gains of $19.2 million related to jet fuel forward contracts that did not qualify for hedge accounting, interest income of $4.7 million, offset by interest expense of $9.5 million due primarily to the indebtedness incurred to fund the Joint Plan and a special charge of $4.2 million on the repurchase of $7.7 million of the Notes. The 2004 year included net reorganization expenses of $129.5 million arising primarily from allowed claims related to affirmed and rejected aircraft leases, and rejected firm orders for aircraft.

Income Tax Expense.   Combined income tax expense was $41.4 million for the year ended December 31, 2005, a $24.6 million, or 146.3%, increase from combined income tax expense of $16.8 million for the comparable period in 2004. It is important to note that the combined income tax provision reflects the separate company income tax expense incurred by Holdings and Hawaiian and is not reflective of the income tax expense that would have resulted had Holdings and Hawaiian filed consolidated income tax returns during the periods presented or had Holdings consolidated Hawaiian during the periods presented. The combined provision for income taxes for 2005 is significantly in excess of the $10.5 million “expected” tax expense, based on the combined federal and state statutory rates applicable to the Company, resulting in an effective tax rate of 157.2%. The combined provision for income taxes of $41.4 million is also significantly in excess of the income taxes that we paid 2005. The primary factor driving the tax rate is a significant increase in book-tax timing differences. These differences result in higher taxable income on the Company’s tax returns, while the offsetting deferred tax asset (representing the value of the future tax deduction when the timing differences “turn” and are recognized in our tax returns) must be fully offset by a valuation allowance given our history of operating losses and Hawaiian’s recent bankruptcy. The impact of these book-tax timing differences was dramatically increased by the application of purchase accounting upon Hawaiian’s emergence from bankruptcy on June 2, 2005, which resulted in fair value adjustments to the book basis of Hawaiian’s assets and liabilities, but had no impact on the corresponding tax basis in those assets and liabilities. Furthermore, while the consummation of the Joint Plan triggered significant tax deductions related to the payment of the lease deficiency claims of Hawaiian, the benefit of those deductions was recorded as a reduction to goodwill, not the provision for income taxes, because the deductions related to transactions originally occurring prior to the point at which Hawaiian was consolidated by the Company. Nevertheless, these deductions did serve to reduce our income taxes payable for 2005 by approximately $21.1 million.

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Liquidity and Capital Resources

Our liquidity is dependent on the operating results and cash flows of Hawaiian, along with our significant debt financings, including the loan agreements entered into in December 2006 to finance the purchase of three previously leased Boeing 767-300ER aircraft and the two credit facilities entered into in June 2005 in connection with Hawaiian’s plan of reorganization and subsequently amended in March 2006. These financial arrangements are described in more detail below and in Note 6, “Debt and Common Stock Warrants”, to our consolidated financial statements included in this Annual Report on Form 10-K.

On June 2, 2005, Hawaiian, as borrower, entered into a credit agreement with the Company, as guarantor, the lenders named therein and Wells Fargo Foothill, Inc., as agent for the lenders (the Term A Credit Facility). As of December 31, 2006, the Term A Credit Facility consisted of a $55 million, 9.38% variable interest rate amortizing term loan due December 10, 2010 and a $25 million revolving line of credit. Hawaiian had issued $4.8 million of letters of credit and had $11.0 million of remaining availability under the Term A Credit Facility as of December 31, 2006. Indebtedness under the Term A Credit Facility is secured by substantially all of Hawaiian’s tangible and certain of its intangible assets. Indebtedness under the Term A Credit Facility bears interest, in the case of base rate loans, at a per annum rate equal to the Wells Fargo Bank N.A. published prime rate plus 150 basis points, and in the case of LIBOR rate loans, at a per annum rate equal to the LIBOR rate plus 400 basis points, subject to certain adjustments as defined in the Term A Credit Facility. However, at no time during the term of the Term A Credit Facility will the interest rate be less than 5.0% per annum.

On June 2, 2005, Hawaiian, as borrower, also entered into a credit agreement with the Company, as guarantor, the lenders named therein and Canyon Capital Advisors, LLC, as agent for the lenders (the Term B Credit Facility). As of December 31, 2006, the Term B Credit Facility consisted of a $62.5 million, 9.0% fixed interest rate non-amortizing term loan due March 11, 2011. The Term B Credit Facility is secured by liens on substantially all of the assets of Hawaiian, subordinate to the prior liens granted to the lenders under the Term A Credit Facility.

In March 2006, we incurred approximately $86.8 million, net of debt issuance costs, in additional debt by amending the Term A and Term B Credit Facilities. We used such additional borrowings to redeem the outstanding balance of the Notes issued in June 2005 to help fund the Joint Plan and to partially fund the acquisition of four used 767-300 aircraft acquired by Hawaiian during the first quarter of 2006. On July 11, 2006, $10.0 million of such additional borrowings, then held in escrow, was released to the Term B Credit Facility lenders, and our total obligation under that facility was reduced commensurately. The release of the $10.0 million to the Term B Credit Facility lenders was accounted for as an early repayment of the $72.5 million non-amortizing term loan we incurred under that credit facility in March 2006, which resulted in a nonoperating charge of $1.0 million due principally to the accelerated amortization of a portion of the debt discount associated with that loan. Since the Term A Facility was amended in March 2006, we have made principal payments totaling $7.5 million.

The terms of the credit facilities restrict our ability to, among other things, incur additional indebtedness, pay dividends or make other payments on investments, consummate asset sales or similar transactions, create liens, merge or consolidate with any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company’s assets. The terms of the credit facilities also restrict the ability of Hawaiian to pay dividends or advances to the Company. The Term A Credit Facility and the Term B Credit Facility include customary covenants for lending transactions of this type, including minimum EBITDA, excess availability and leverage ratio financial covenants. The Company was in compliance with the covenants of the Term A and Term B Credit Facilities as of December 31, 2006.

On April 21, 2006, we redeemed all of the then outstanding Notes for approximately $55.9 million inclusive of a $2.6 million prepayment premium and $1.0 million of accrued and unpaid interest to that

42

date. We incurred an approximate $28.0 million loss on such redemption due principally to the accelerated amortization of the remaining discount associated with the Notes when they were initially issued in June 2005.

During December 2006, we borrowed a total of $126 million from a third-party lender to help finance the purchase of three previously-leased Boeing 767-300ER aircraft. The purchase of these three aircraft from AWAS was done in conjunction with the lease modification of four other Boeing 767-300ER aircraft also leased from AWAS in order to remove a provision of the previous agreements that allowed AWAS to exercise early termination options beginning in 2007.

Cash Flows

Due to the significance of the operating cash flows of Hawaiian to our future liquidity, our historical sources and uses of cash and those of Hawaiian have been combined for the periods we did not consolidate Hawaiian and are discussed below with our consolidated sources and uses of cash for the periods we consolidated Hawaiian in order to provide a more informative comparison of cash flows for those periods.

Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.
Condensed Combined Statements of Cash Flows

	Year ended December 31,
	2006 (*)			2005 (**)			2004 (**)
	(in thousands)
Cash Flows From Operating Activities:
Net cash provided by operating activities before reorganization activities	$	63,143		$	78,715		$	46,711
Net cash used in reorganization activities	—			(4,491		)	(18,060		)
Net cash provided by operating activities	63,143			74,224			28,651
Cash Flows From Investing Activities:
Additions to property and equipment	(236,335		)	(20,352		)	(13,673		)
Net sales (purchases) of short-term investments	(24,397		)	(18,247		)	(4,388		)
Net cash used in investing activities	(260,732		)	(38,599		)	(18,061		)
Cash Flows From Financing Activities:
Proceeds from issuance of common stock	—			—			11,192
Tax benefit from stock option exercise	191			—			—
Proceeds on notes receivable from sales of common stock	—			20			—
Proceeds from exercise of stock options	951			1,212			—
Long-term borrowings	217,250			—			—
Repurchase of subordinated convertible notes and warrants	(54,891		)	(7,722		)	—
Repayments of long-term debt and capital lease obligations	(24,321		)	(6,810		)	(1,083		)
Debt issuance costs	(4,894		)	—			—
Net cash provided by (used in) financing activities	134,286			(13,300		)	10,109
Net increase in cash and cash equivalents	(63,303		)	22,325			20,699
Cash and cash equivalents—Beginning of Period	130,155			107,830			87,131
Cash and cash equivalents—End of Period	$	66,852		$	130,155		$	107,830

(*)Consolidated cash flows of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.

(**)Combined cash flows of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc.

Hawaiian has been able to maintain positive cash flow from operations principally by increasing scheduled passenger revenue through a combination of yield management and scheduling on its long-haul and interisland routes, and through increases in the sale of miles to companies affiliated with its frequent flyer program, HawaiianMiles. However, the introduction of new and expanded service into our

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transpacific market by certain major domestic airlines, the depressed fares in our interisland markets associated with overall capacity increases including the initiation of interisland service by Mesa Airlines in early June 2006, and any other potential downward pressures on our yields and load factors in the markets we serve have impacted and may continue to adversely impact Hawaiian’s operating revenues. As discussed above, to counteract in part such potentially adverse effects on our operating revenues, we have initiated programs aimed at significantly reducing our operating expenses in order to help maintain positive cash flow from operations in the future.

Cash, cash equivalents, restricted cash and short term investments were $168.2 million and $206.8 million as of December 31, 2006 and 2005, respectively. Cash and cash equivalents were $66.9 million as of December 31, 2006, a decrease of $63.3 million from cash and cash equivalents of $130.2 million as of December 31, 2005. We also had restricted cash on those dates of $53.7 million and $53.4 million, respectively, which consisted almost entirely of cash held as collateral by entities that process our credit card transactions for advance ticket sales. Substantially all of the cash held as collateral for credit card sales transactions earns interest for our benefit and is released to us as the related travel is provided to our passengers. Effective January 1, 2007, Hawaiian amended its largest credit card processing contract, reducing the cash collateral required by the credit card processor subject to certain adjustments based on the level of advanced ticket sales and Hawaiian’s performance relative to specific financial measures. Hawaiian’s short term investments balance was $47.6 million and $23.2 million as of December 31, 2006 and 2005, respectively. Historically, Hawaiian’s cash flow from operations is higher in the second and third quarters, while the first and fourth quarters traditionally reflect reduced travel demand except for specific periods around holidays and spring break.

Despite the $25.5 million decrease in the net earnings for the year ended December 31, 2006 compared to the same period in 2005, net cash provided by operating activities before reorganization activities decreased only by $15.6 million for the 2006 period compared to the same period in 2005. This disparity was principally because substantially all of the $34.8 million nonoperating losses we incurred during 2006 did not require the use of cash. These nonoperating items included the redemption of the Notes and modifications and an early repayment associated with Hawaiian’s two credit facilities, as well as charges for the write-off of intangible assets related to the aircraft and spare engine leases that were modified in December 2006. Reorganization activities used $4.5 million in net cash during the year ended December 31, 2005, mostly for payments of professional fees associated with Hawaiian’s bankruptcy case and eventual reorganization. Net cash used in investing activities was $260.7 million for the year ended December 31, 2006 compared to $39.0 million for the comparable period in 2005, the increase in cash used during 2006 being primarily due to the acquisition of a total of seven Boeing 767 aircraft - three previously leased from AWAS and four used aircraft that were additions to our total fleet, all of which are discussed further below. Financing activities provided net cash of approximately $134.3 million during year ended December 31, 2006 compared to net cash used in financing activities of approximately $13.3 million during the same period in 2005. The period-over-period difference in net cash provided by/used in financing activities was primarily due to the approximate $217.3 million of additional debt we incurred during 2006 (net of associated issuance costs) less $54.9 million used to redeem the Notes in April 2006 and $24.3 million of other principal repayments made during 2006.

Capital Expenditures

In the first quarter of 2006, Hawaiian purchased four used Boeing 767-300 aircraft for a total purchase price of approximately $32.0 million. In addition to the purchase of these four aircraft, our capital expenditures during 2006 to ready the aircraft for service were approximately $47.0 million. The first aircraft was placed into service in September 2006 without interior modifications. The second and third aircraft were fully modified and placed into service in January and March 2007, respectively. The fourth aircraft is expected to be in service by May 2007, with additional capital costs of approximately $6.0 million.

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During 2006, the Company also purchased three Boeing 767-300ER aircraft from AWAS for a total purchase price of $150.8 million. These aircraft were previously leased and continued to operate in our fleet without any modifications. Total other capital expenditures for 2006 were approximately $10.5 million. In 2007, our estimated capital expenditures are expected to be approximately $28.0 million, which includes approximately $6.0 million related to the completion of modifications and overhauls of the Boeing 767-300 aircraft purchased in 2006. A substantial portion of the remainder of our 2007 capital expenditures are for improvements to our information technology systems. We also have three spare engines with leases expiring in 2007, 2008 and 2009. At this time, we are uncertain if the engine requirements will be satisfied through an operating lease or via capital expenditures. We have not included this possibility in our capital spending projections. The majority of these anticipated capital expenditures are not firm commitments, and therefore we can adjust the level of our capital spending based on our then current and projected available cash.

We may also acquire additional aircraft from time to time as opportunities arise to both (i) acquire the aircraft on satisfactory price and financing terms, and (ii) deploy them in appropriate markets. We currently do not have any firm commitments to acquire additional aircraft.

Financial Covenants

The terms of our Term A and Term B Credit Facilities restrict our ability to, among other things, incur additional indebtedness, pay dividends or make other payments on investments, consummate asset sales or similar transactions, create liens, merge or consolidate with any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of our assets. The terms of the agreements contain covenants that require us to meet certain financial tests to avoid a default that might lead to early termination of the facilities. Moreover, these agreements contain covenants that require us to meet certain financial tests. If we were not able to comply with these covenants, our outstanding obligations under these facilities could be accelerated and become due and payable immediately.

Under our bank-issued credit card processing agreement, our card processor holds back proceeds from advance ticket sales to serve as collateral to cover any possible chargebacks or other disputed charges that may occur. These holdbacks, which are included in restricted cash in our consolidated balance sheet, totaled $53.7 million at December 31, 2006. Funds are subsequently made available to us as air travel is provided. The agreement also contains financial covenants which require, among other things, that we maintain a minimum amount of unrestricted cash and maintain certain levels of debt service coverage and operating income. Although we are currently in compliance with all of these covenants, failure to maintain compliance would result in our credit card processor being able to hold back additional proceeds from advance ticket sales, which would adversely affect our liquidity. Depending on our unrestricted cash and short-term investments balance at the time, the holdback of a significant amount of cash collateral could cause our unrestricted cash and short-term investments balance to fall below the minimum balance requirement under our Term A Credit Facility, resulting in a default under that facility.

Pension Plan Funding

Hawaiian sponsors three tax-qualified defined benefit pension plans covering its ALPA, IAM, TWU, NEG and certain non-contract employees. In the aggregate, these plans are underfunded. As of December 31, 2006, the excess of the projected benefit obligations over the fair value of plan assets was approximately $74.0 million. Hawaiian made scheduled contributions of $10.9 million and $23.3 million during 2006 and 2005, respectively and anticipates contributing $8.7 million to the defined benefit pension plans during 2007. Future funding requirements are dependent upon many factors such as interest rates, funding status, applicable regulatory requirements for funding purposes and the level and timing of asset returns.

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Off-Balance Sheet Arrangements

An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a company has (i) made guarantees, (ii) retained a contingent interest in transferred assets, (iii) an obligation under derivative instruments classified as equity or (iv) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging or research and development arrangements with the Company. We have no arrangements of the types described in the first three categories that we believe may have a current or future material effect on our financial condition, liquidity or results of operations. We do have obligations arising out of variable interests in unconsolidated entities related to certain airport leases. Our airport leases are typically with municipalities or other governmental entities. To the extent our leases and related guarantees are with a separate legal entity other than a governmental entity, we are not the primary beneficiary because the lease terms are consistent with market terms at the inception of the lease, and the lease does not include a residual value guarantee, fixed price purchase option or similar feature.

Contractual Obligations

Our estimated contractual obligations as of December 31, 2006 are summarized in the following table (in thousands):

Contractual Obligations

									2012 and
Contractual Obligations	Total		2007		2008-2009		2010-2011		Thereafter
Fixed-rate debt(1)	$	87,874	$	5,729	$	11,427	$	70,718	$	—
Variable-rate debt(1)	278,867		34,100		68,358		73,348		103,061
Notes payable to IRS(2)	25,866		5,748		11,496		8,622		—
Capital lease obligations	1,357		271		347		204		535
Operating leases—aircraft and related equipment(3)	769,802		88,026		174,750		127,796		379,230
Operating leases—non-aircraft(3)	27,913		3,439		6,412		5,272		12,790
Projected employee benefit contributions(4)	41,720		8,680		33,040		—		—
Total contractual obligations(5)	$	1,233,399	$	145,993	$	305,830	$	285,960	$	495,616

(1)Amounts represent contractual amounts due, including interest. Interest on floating rate debt was estimated using projected forward rates as of the fourth quarter of 2006.

(2)Amounts represent long-term obligations payable to the IRS for settlement of certain pre and post petition tax claims.

(3)Amounts represent minimum lease payments due under the respective lease agreements. We have assumed no escalations in rents that are contingent in nature.

(4)Amounts represent our estimate of the minimum funding requirements under the ERISA, including the impact of the Pension Protection Act of 2006 (PPA). The PPA allows certain funding relief for airlines and that relief is anticipated in these expected contributions. Amounts are subject to change based on numerous factors, including interest rate levels, the amount and timing of asset returns, and the impact of future legislation. We are unable to estimate the projected contributions beyond 2009.

(5)Total contractual obligations do not include long-term contracts where the commitment is variable in nature, such as aircraft maintenance deposits due under operating leases and fees due under certain other agreements such as aircraft maintenance power-by-the-hour, computer reservation systems and credit card processing agreements, or when the agreements contain short-term cancellation provisions.

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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon financial statements that have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities as of the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies and estimates are defined as those accounting policies and accounting estimates that are reflective of significant judgments and uncertainties, and that potentially result in materially different results under different assumptions and conditions. For a detailed discussion of the application of these and other accounting policies, see Note 3, “Summary of Significant Accounting Policies”, in the notes to our consolidated financial statements included in this Form 10-K.

Revenue Recognition.   Passenger revenue is recognized either when the transportation is provided or when the related ticket expires unused. The value of unused passenger tickets is included as air traffic liability. Any adjustments resulting from periodic evaluations of this estimated liability, which can be significant, are included in results of operations for the periods in which the evaluations are completed. Cargo and charter revenue are recognized when the transportation is provided. Other revenue includes revenue from the sale of frequent flyer miles, ticket change fees and other incidental services.

We are required to charge certain taxes and fees on our passenger tickets. These taxes and fees include U.S. federal transportation taxes, federal security charges, airport passenger facility charges and foreign arrival and departure taxes. These taxes and fees are legal assessments on the customer. As we have a legal obligation to act as a collection agent with respect to these taxes and fees, we do not include such amounts in passenger revenue. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable government agency or operating carrier.

Pension and Other Postretirement Benefits.   We account for our defined benefit pension plans in accordance with Statement of Financial Accounting Standards (SFAS) No. 87, “Employer’s Accounting for Pensions” (SFAS 87) and our other postretirement benefit plans using SFAS No. 106, “Employer’s Accounting for Postretirement Benefits Other than Pensions” (SFAS 106). Effective December 31, 2006, we adopted SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS 158), which amends SFAS 87 and SFAS 106. The adoption of SFAS 158 resulted in a decrease to our pension liability and an increase to shareholders’ equity (deficiency) of approximately $57 million. SFAS 158 requires companies to measure its plans’ assets and obligations that determine its funded status at fiscal year end, recognize the funded status of their benefit plans in the statement of financial position as an asset or liability, and recognize changes in the funded status of the plans in comprehensive income during the year which the changes occur. However, the amount of net periodic benefit cost that we recognize in our statement of operations will continue to be accounted for in accordance with SFAS 87 and SFAS 106. Under both SFAS 87 and SFAS 106, pension and other postretirement benefit expense is recognized on an accrual basis over employees’ approximate service periods. Expense calculated under SFAS 87 and SFAS 106 is generally independent of funding decisions or requirements. The calculation of pension and other postretirement benefit expense requires the use of a number of significant assumptions. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from the assumptions.

We assumed that the assets in Hawaiian’s plans would generate a long-term rate of return of 7.9% at June 2, 2005, the date we reacquired Hawaiian and at December 31, 2005 and 2006. The expected long-term rate of return assumption is developed by evaluating input from the trustee managing the plans’ assets, including the trustee’s review of asset class return expectations by several consultants and

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economists as well as long-term inflation assumptions. Our expected long-term rate of return on plan assets is based on a target allocation of assets, which based on our goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. Our allocation of assets was as follows at December 31, 2006:

	Percent of Total			Expected Long-Term Rate of Return
U.S. equities		25.6	%		9.6	%
International equities		31.3	%		10.8	%
Fixed income		32.9	%		4.7	%
Other		10.2	%		6.7	%
Total		100.0	%

We believe that our long-term asset allocation on average will approximate the targeted allocation. We regularly review our actual asset allocation and periodically rebalance the pension plan’s investments to our targeted allocation when considered appropriate. Pension expense increases as the expected rate of return on plan assets decreases. Lowering the expected long-term rate of return on our plan assets by one percent (from 7.9% to 6.9%) would increase our estimated 2007 pension expense by approximately $2.5 million.

We discounted our future pension benefit obligation using a discount rate of 5.0% at June 2, 2005, the date we reacquired Hawaiian and recorded its pension obligation at its fair value, 5.5% at December 31, 2005, and a weighted average discount rate of 5.86% for all plans at December 31, 2006. We discounted our future other postretirement benefit obligation using a discount rate of 5.0% at June 2, 2005, 5.5% at December 31, 2005 and 5.9% at December 31, 2006. We determine the appropriate discount rate for each of our plans based on current rates on high quality corporate bonds that would generate the cash flow necessary to pay plan benefits when due. The pension and other post retirement benefit liabilities and future expense both increase as the discount rate is reduced. Lowering the discount rate by one percent would increase our pension and other post retirement benefit liabilities at December 31, 2006 by approximately $42.8 million and $8.8 million, respectively, and would increase our estimated 2007 pension and other postretirement benefit expense by approximately $1.7 and $0.6 million, respectively.

At December 31, 2006, the health care cost trend rate was assumed to be 9.0% for 2007 and decrease gradually to 5.0% over seven years and remain level thereafter. A one percent increase in the assumed health care cost trend rate would increase the other post retirement benefit obligation as of December 31, 2006 by approximately $9.1 million and our estimated 2007 other post retirement benefit expense by approximately $1.3 million. A one percent decrease in the assumed health care cost trend rate would decrease the accumulated retiree medical benefit obligation as of December 31, 2006 by approximately $7.4 million and our estimated 2007 other postretirement benefit expense by approximately $1.6 million.

Future changes in plan asset returns, plan provisions, assumed discount rates, pension funding legislation and various other factors related to the participants in our pension plans will impact our future retirement benefit expense and liabilities. We cannot predict with certainty what these factors will be in the future.

Embedded financial instruments.   Warrants issued in connection with debt financings are accounted for in accordance with Accounting Principles Board (APB) Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”, where the portion of the proceeds allocable to the warrants is treated as additional paid-in capital. The allocation between the debt and additional paid-in

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capital is based on the relative fair values of the two securities at time of issuance. The resulting debt discount is amortized using the effective interest rate method to interest expense over the life of the debt instrument. For purposes of valuing the common stock warrants issued in connection with the Notes in June 2005 and the Term B Credit Facility in March 2006, we utilized the Black-Scholes-Merton option pricing model. The most critical assumption used in developing the fair value of the warrants is the expected volatility of our stock. Because the historic volatility of our common stock is not a reliable indicator of future volatility due to Hawaiian’s bankruptcy and the thin liquidity for our common stock during that period, we utilized a stock volatility factor based on a peer comparison group for a period of time approximating the term of the warrants, which resulted in an expected volatility of 58% and 47% for the warrants issued in June 2005 and March 2006, respectively. The value ascribed to the common stock warrants as capital in excess of par value in the accompanying balance sheet as of December 31, 2006 and 2005 was $6.3 million and $12.6 million, respectively, after giving effect to the cancellation of 882,301 warrants associated with the repurchases in the fourth quarter of 2005 of $7.7 million par value of the Notes. Additionally, convertibility features within debt instruments are evaluated under Emerging Issues Task Force Consensus 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, whereby an “in-the-money” nondetachable conversion feature at the commitment date (a beneficial conversion feature) is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that beneficial conversion feature to additional paid-in capital. The intrinsic value of the beneficial conversion is calculated as the difference between the conversion price, adjusted for the fair value allocated to warrants described above, and the fair value of the common stock (or other securities into which the security is convertible) multiplied by the number of shares into which the security is convertible. The amount recorded as additional capital in excess of par value in the accompanying balance sheet at December 31, 2005 for the beneficial conversion feature in the Notes was $27.8 million and was not affected by the $7.7 million of repurchases of the Notes in the fourth quarter of 2005 as the per share market prices of our common stock as of the dates of such repurchases was less than the $4.35 per share conversion price provided for in the Notes. The resulting debt discount associated with the beneficial conversion feature is amortized to interest expense using the effective interest rate method over the life of the debt instrument. As a result of the amounts ascribed to the beneficial conversion feature in the Notes and the common stock warrants issued in connection therewith, the Notes were recorded at a substantial discount, which was being amortized to interest expense over the remaining life of the Notes. The carrying value of the Notes at December 31, 2005 was $18.1 million, and the effective interest rate on the Notes was 33.5% over the remaining life of the Notes. On April 21, 2006, we redeemed all of the then outstanding Notes for $55.9 million, inclusive of a $2.6 million prepayment premium and $1.0 million of accrued and unpaid interest to that date. We incurred a $28.0 million nonoperating loss on the redemption of the Notes due principally to the accelerated amortization of the remaining discount associated with the Notes when they were initially issued in June 2005. Warrants to acquire approximately 6.0 million shares of the Company’s common stock issued to the former holders of these notes remain outstanding under their original terms until June 1, 2010.

Derivative Financial Instruments.   We have adopted a fuel hedging program that provides us with flexibility of utilizing certain derivative financial instruments, such as heating oil forward contracts and jet fuel forward contracts to manage market risks and hedge our financial exposure to fluctuations in our aircraft fuel costs. Heating oil forward contracts and/or jet fuel forward contracts are utilized to hedge a portion of our anticipated aircraft fuel needs. At December 31, 2006, we had hedged approximately 10% of our anticipated aircraft fuel needs for 2007. We do not hold or issue derivative financial instruments for trading purposes. Such instruments are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133), which requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. To the extent a company complies with the hedge documentation requirements and can demonstrate a highly effective hedge, both at the designation of the hedge and throughout the life of the hedge, such

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derivatives are recorded at fair value with the offset to accumulated other comprehensive income (loss), net of hedge ineffectiveness. Such amounts are recognized as a component of fuel expense when the underlying fuel being hedged is used. The ineffective portion of a change in the fair value of the forward contracts is immediately recognized in earnings as a component of nonoperating income (loss). We designated the effectiveness of our jet fuel forward contracts based on the changes in fair value attributable to changes in spot prices; the change in fair value related to the changes in the difference between the spot price and the forward price (i.e., the spot-forward difference) are excluded from the assessment of hedge effectiveness. As a result, any changes in the spot-forward difference are immediately recognized into earnings as a component of other nonoperating income (expense). For the year ended December 31, 2006 and 2005, we recognized $7.3 million of nonoperating losses and $2.5 million of nonoperating gains, respectively, related to spot-forward changes. Derivatives that are not hedges, or for situations where we have not met the stringent documentation requirements of SFAS 133, such derivatives must be adjusted to fair value through earnings. We measure fair value of our derivatives based on quoted values provided by the counterparty. Upon our acquisition of Hawaiian and through August 31, 2005, the documentation requirements for hedge accounting pursuant to SFAS 133 were not met, and therefore increases in the fair value of the jet fuel forward contracts on approximately 40% of our fuel consumption of approximately $15.0 million were reported through earnings as nonoperating income. As of September 1, 2005, we had completed the required documentation and designated the jet fuel forward contracts as cash flow hedges under SFAS 133.

Aircraft maintenance and repair costs.   Maintenance and repair costs for owned and leased flight equipment, including the overhaul of aircraft components, are charged to operating expenses as incurred. Engine overhaul costs covered by power-by-the-hour arrangements are paid and expensed as incurred, on the basis of hours flown per contract. Under the terms of our power-by-the-hour agreements, we pay a set dollar amount per engine hour flown on a monthly basis and the third-party vendor assumes the obligation to repair the engines at no additional cost to us, subject to certain specified exclusions.

Additionally, although our aircraft lease agreements specifically provide that we, as lessee, are responsible for maintenance of the leased aircraft, we do, under our existing aircraft lease agreements, pay maintenance reserves to aircraft lessors that are to be applied towards the cost of future maintenance events. These reserves are calculated based on a performance measure, such as flight hours, and are available for reimbursement to us upon the completion of the maintenance of the leased aircraft. If there are sufficient funds on deposit to reimburse us for the invoices initially paid by Hawaiian and then submitted to the lessor, they are reimbursed to us. However, reimbursements are limited to the available deposits associated with the specific maintenance activity for which we are requesting reimbursement. Under certain of our existing aircraft lease agreements, if there are excess amounts on deposit at the expiration of the lease, the lessor is entitled to retain any excess amounts; whereas at the expiration of certain other of our existing aircraft lease agreements any such excess amounts are returned to us, provided that we have fulfilled all of our obligations under the lease agreements. The maintenance reserves paid under our lease agreements do not transfer either the obligation to maintain the aircraft or the cost risk associated with the maintenance activities to the aircraft lessor. In addition, we maintain the right to select any third-party maintenance provider. Therefore, we record these amounts as a deposit on our balance sheet and then recognize maintenance expense when the underlying maintenance is performed, in accordance with our maintenance accounting policy. Because we recognize expense when the underlying maintenance is performed, as opposed to expensing the deposits when paid to the lessor, and because the cost of maintaining an aircraft increases as the aircraft gets older, we will recognize significantly less maintenance expense in the earlier years of the leases than in the later years, even though our use of and benefit from the aircraft does not vary correspondingly over the term of the lease, and our current and past results of operations may not be indicative of our future results as a result of our

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expectation of expensing the deposits in the future. Hawaiian’s maintenance reserve activity for the past three years is as follows (in thousands):

	Beginning Balance			Payments			Reimbursements				Ending Balance
Year ended December 31:
2004		$	15,916		$	11,412		$	(1,990	)	$	25,338
2005		25,338			12,593			(7,542		)	30,389
2006		30,389			14,604			(8,504		)	36,489
Fair value adjustments(1)											(4,325		)
Deposits not considered probable of recovery(2)											(4,039		)
Recorded balance at December 31, 2006											$	28,125

(1)The Company recorded Hawaiian’s maintenance deposits at fair value upon Hawaiian’s emergence from bankruptcy on June 2, 2005. The individual line items in the table do not reflect the fair value adjustments recorded by the Company (which related primarily to recording the deposits at their net present value as of June 2, 2005, based on the anticipated dates the underlying maintenance would be performed).

(2)Deposits made by Hawaiian prior to its emergence from bankruptcy that were not considered probable of recovery as of June 2, 2005 and certain spare engine deposits discussed below.

Any non-refundable amounts that are not probable of being used to fund future maintenance expense would be recognized as additional aircraft rental expense. In determining whether it is probable that maintenance deposits will be used to fund the cost of maintenance events, we conduct the following analysis:

·We evaluate the aircraft’s condition, including the airframe, the engines, the auxiliary power unit and the landing gear.

·We then project future usage of the aircraft during the term of the lease based on our business and fleet plan.

·We also estimate the cost of performing all required maintenance during the lease term. These estimates are based on the experience of our maintenance personnel and industry available data, including historical fleet operating statistic reports published by the aircraft and engine manufacturers.

Our assessment of the recoverability of our maintenance deposits is subject to change in the event that key estimates and assumptions supporting it change over time. Those key estimates and assumptions include the Company’s fleet plan and the projected total cost and, to a lesser extent, anticipated timing of the major maintenance activities covered by the maintenance reserves. In December 2006, as described more fully in the notes to our consolidated financial statements, we amended certain of our aircraft and spare engine leases. These amendments, among other things, reduced the respective lease terms and amended certain provisions with regard to the maintenance deposits. As a result of the reductions in the lease terms, we expensed $0.9 million of maintenance deposits that we had previously determined to be recoverable through future maintenance activities, and, subsequent to the amendments, began expensing certain of the maintenance deposits as they become due. This revision in our assessment was based solely on the reduced term of the lease and not a change in the projected total cost of the anticipated major maintenance activities that will be required over the life of the engine. Based on current market conditions we believe that further significant changes in our fleet plan are unlikely. Furthermore, based on historical trends and future projections, including those published by the manufacturers of our aircraft and engines,

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we believe it is unlikely that future maintenance costs for our aircraft will decline to such an extent that the maintenance deposits currently recorded on our consolidated balance sheet would not be used to fund the cost of future maintenance events and therefore not be recoverable.

Impairment of Long-Lived Assets.   We record impairment losses on long-lived assets used in operations, primarily property and equipment and intangible assets subject to amortization, when events and circumstances indicate, in management’s judgment, that the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Cash flow estimates are based on historical results adjusted to reflect the best estimate of future market and operating conditions. The net carrying value of assets not recoverable is reduced to fair value. Estimates of fair value represent management’s best estimate based on market trends, recent transactions involving sales of similar assets and, if necessary, estimates of future discounted cash flows.

We provide an allowance for spare parts inventory obsolescence over the remaining useful life of the related aircraft, plus allowances for spare parts currently identified as excess. These allowances are based on estimates and industry trends, which are subject to change, and, where available, reference to market rates and transactions. The estimates are more sensitive near the end of a fleet life or when entire fleets are removed from service sooner than originally planned.

Goodwill and Indefinite-Lived Purchased Intangible Assets.   We review goodwill and purchased intangible assets with indefinite lives, all of which relate to the acquisition of Hawaiian, for impairment annually and/or whenever events or changes in applicable circumstances indicate the carrying value of an asset may not be recoverable in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). The provisions of SFAS 142 require that a two-step impairment test be performed on goodwill. In the first step, the fair value of the Hawaiian reporting unit is compared to its carrying value. If the fair value of the Hawaiian reporting unit exceeds the carrying value of its net assets, goodwill is not impaired and no further testing is required to be performed. If the carrying value of the net assets of the Hawaiian reporting unit exceeds its fair value, then the second step of the impairment test must be performed in order to determine the implied fair value of the Hawaiian reporting unit’s goodwill. If the carrying value of the goodwill exceeds its implied fair value, then an impairment loss is recorded equal to the difference. SFAS 142 also requires that the fair value of the purchased intangible assets with indefinite lives be estimated and compared to the carrying value. We recognize an impairment loss when the estimated fair value of the intangible asset is less than the carrying value. Determining the fair value of a reporting unit or an indefinite-lived purchased intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and determination of appropriate market comparables. We base our fair value estimates on assumptions management believes to be reasonable but are unpredictable and inherently uncertain. Actual future results may differ from these estimates. We have reviewed the carrying values of goodwill and the intangible asset associated with the fair value of Hawaiian’s trade name pursuant to the applicable provisions of SFAS No. 142 and have concluded that such carrying values were not impaired as of December 31, 2006.

Frequent Flyer Accounting.   We utilize a number of estimates in accounting for the HawaiianMiles frequent flyer program that are consistent with industry practices. We record a liability for the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian or the contractual rate of expected redemption on partner airlines. Incremental cost includes the costs of fuel, meals and beverages, and certain other passenger traffic related costs, but does not include any costs for aircraft ownership and maintenance. A change to these cost estimates, the actual redemption activity, or the amount of redemptions on partner airlines could have a significant impact on our liability in the period of change as well as future years. The liability is adjusted periodically based on awards earned, awards redeemed, changes in the incremental costs and changes in the HawaiianMiles frequent flyer program, and is included in the

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accompanying consolidated balance sheets as air traffic liability. Changes in the liability are recognized in the period of change. Hawaiian also sells mileage credits in the HawaiianMiles frequent flyer program to participating companies such as hotels, car rental agencies and credit card companies. A portion of the revenue from the sale of mileage credits is deferred and amortized as passenger revenue over the estimated period when the transportation is expected to be provided. Amounts in excess of the fair value of the transportation to be provided are recognized immediately as other operating income. The estimated period over which the transportation is expected to be provided is based on the historical average time taken by our members to accumulate mileage credits and fly using the miles redeemed (currently 18 months). Under the programs of certain participating companies, credits are accumulated in accounts maintained by the participating company and then transferred into a member’s HawaiianMiles account for immediate redemption for a free travel award. For those transactions, revenue is amortized over the historical period of time between when a member redeems mileage credits for a free travel award and when the resulting free travel is provided (currently five months). On a periodic basis, we review and update the amortization periods. A change to the amortization periods, the actual redemption activity or our estimate of the amount or fair value of expected transportation could have a significant impact on our revenue in the year of change as well as future years.

Stock Compensation.   Effective January 1, 2006, we account for stock options in accordance with Financial Accounting Standards Board No. 123 (revised 2004), “Share Based Payment” (SFAS 123R) , which replaces SFAS 123 “Accounting for Stock-Based Compensation” (SFAS 123), and supersedes Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). SFAS 123R requires that all stock-based payments to employees, including grants of employee stock options, be recognized as compensation expense in the financial statements based on their fair values. SFAS 123R also requires that tax benefits associated with these stock-based payments be classified as financing activities in the statement of cash flows rather than operating activities.

Prior to its adoption of SFAS 123R, the Company accounted for its stock option and stock bonus plans pursuant to APB 25 and related Interpretations, and the pro forma disclosure provisions of SFAS 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”.

SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of such awards on the dates they are granted. The fair value of the awards is estimated using option-pricing models for grants of stock options, or the fair value at the measurement date (usually the grant date) for awards of stock. The resultant cost is recognized as compensation expense over the period of time during which an employee is required to provide services to the company (the service period) in exchange for the award, the service period generally being the vesting period of the award. Under APB 25, no compensation expense was recognized for grants of stock options if on the date the option was granted its exercise price was equal to or more than the fair value of the underlying stock. Although SFAS 123, as amended, encouraged the recognition of expense associated with the fair value of grants of stock options, SFAS 123 allowed for the presentation in the notes to financial statements of pro forma net income (loss) as if a company had accounted for granted employee stock options using the fair value method prescribed by SFAS 123.

We account for all stock options granted on and after January 1, 2006 pursuant to SFAS 123R. For stock option awards granted prior to January 1, 2006, but for which the vesting periods were not complete, we adopted the modified prospective transition method permitted by SFAS 123R. Under this method, we account for unvested awards on a prospective basis over their remaining vesting periods as of January 1, 2006, with expense being recognized in the statement of operations using the grant-date fair values previously calculated for the SFAS 123 pro forma disclosures presented below and for other applicable periods ended prior to January 1, 2006. We estimate the fair values of our options using the Black-Scholes-Merton option-pricing model. This option-pricing model requires us to make several

53

assumptions regarding the key variables used in the model to calculate the fair value of its stock options. The risk-free interest rate used by us is based on the U.S. Treasury yield curve in effect for the expected lives of the options at their dates of grant. We use a dividend yield of zero as we have never paid nor do we intend to pay dividends on our common stock. The expected lives of stock options granted on and subsequent to January 1, 2006 were determined using the “simplified” method prescribed in the SEC’s Staff Accounting Bulletin No. 107. The most critical assumption used in calculating the fair value of stock options is the expected volatility of the entity’s common stock. Due to Hawaiian’s bankruptcy and the thin liquidity of our common stock during that period, we believe that the historic volatility of our common stock is not a reliable indicator of future volatility. Accordingly, we have used a stock volatility factor based on the stock volatility factors of a peer comparison group over a period of time approximating the estimated lives of our stock options.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are subject to certain market risks, including commodity price risk (i.e., jet fuel prices) and interest rate risk. We have market sensitive instruments in the forms of financial derivative instruments used to hedge Hawaiian’s exposure to increases in jet fuel prices and a variable interest rate debt. We have market risk for the changes in the fair value of our fixed-rate debt resulting from movements in interest rates. The adverse effects of potential changes in these market risks are discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity nor do they consider additional actions we might undertake to mitigate its exposure to such adverse changes. Actual results may differ. See the discussion of critical accounting policies above for other information related to these financial instruments.

Aircraft Fuel Costs

Aircraft fuel costs was the largest component of Hawaiian’s operating expenses for the year ended December 31, 2006, representing 27.3% of total operating expenses. Based on gallons expected to be consumed in 2007, for every one-cent change in the cost per gallon of jet fuel, Hawaiian’s annual fuel expense will increase or decrease by approximately $1.3 million.

As of December 31, 2006, Hawaiian had entered into jet fuel forward contracts with a single counterparty. Under the terms of these jet fuel forward contracts, Hawaiian pays a fixed price per gallon for jet fuel ranging from $1.85 to $2.03 per gallon and receives a floating price per gallon for jet fuel from the counterparty based on the market price for jet fuel. At December 31, 2006, our fuel hedges outstanding were in a loss position. Based on quoted values provided by the counterparty, the fair value of our obligation related to these contracts was $1.1 million and is included in other current liabilities. The fair value of the jet fuel forward contracts as of December 31, 2005 was $2.4 million and was recorded in prepaid expenses.

The following table reflects Hawaiian’s open jet fuel forward contract positions as of February 2, 2007 (reflects actual hedging for January 2007):

	Average Jet Fuel Contract Price Per Gallon			Gallons Purchased Forward (thousands)		Percentage of Quarterly Consumption Purchased Forward
First Quarter 2007		$	1.914		13,346		44	%
Second Quarter 2007		$	1.918		7,434		23	%
Third Quarter 2007		$	1.974		1,218		4	%
Fourth Quarter 2007		$	2.000		252		1	%

54

We do not hold or issue derivative financial instruments for trading purposes. We are exposed to credit risks in the event the above counterparty fails to meet its obligations; however, we do not expect this counterparty to fail to meet its obligations.

Interest Rates

Our results of operations are affected by fluctuations in interest rates due to our variable-rate debt and interest income earned on certain of our cash deposits and short-term investments. The Company’s debt agreements include the Term A Credit Facility, Term B Credit Facility and the Boeing 767-300ER financing agreements, the terms of which are discussed in Note 6 to our consolidated financial statements included in this Form 10-K.

At December 31, 2006, we had approximately $86.5 million of fixed rate debt including capital lease obligations of $1.0 million, and $181.0 million of variable rate debt indexed to the Wells Fargo Bank Prime Rate and the one-month London Interbank Bank Offered Rate (LIBOR) and six-month LIBOR. Interest rates on the LIBOR indexed loans adjust either monthly or semi-annually. The Wells Fargo Bank Prime Rate was 8.25% and one-month LIBOR and six-month LIBOR were 5.32% and 5.37%, respectively, on such date. We do not mitigate our exposure to variable-rate debt by entering into interest rate swaps. Therefore, changes in market interest rates have a direct and corresponding effect on our pre-tax earnings and cash flows associated with our floating rate debt and interest-bearing cash accounts and short-term investments. However, based on the balances of our cash and cash equivalents, restricted cash, short term investments, and variable-rate debt as of December 31, 2006, a change in interest rates would not have a material impact on our results of operations because the level of our variable-rate interest-bearing cash deposits and investments approximates the level of our variable-rate liabilities. Should that relationship change in the future, our exposure to changes in interest rate fluctuations would likely increase.

Market risk for fixed-rate long-term debt and capitalized lease obligations is estimated as the potential increase in fair value resulting from a hypothetical 10 percent decrease in interest rates, and amounted to approximately $2.7 million as of December 31, 2006.

55

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

INDEX TO FINANCIAL STATEMENTS

	Page
Hawaiian Holdings, Inc.
Report of Independent Registered Public Accounting Firm		57
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004		58
Balance Sheets as of December 31, 2006 and 2005		59
Consolidated Statements of Shareholders’ Equity (Deficiency) and Comprehensive Loss for the years ended December 31, 2006, 2005 and 2004		60
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004		61
Notes to Consolidated Financial Statements		62
Hawaiian Airlines, Inc.
Report of Independent Auditors		99
Statements of Operations for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004		100
Balance Sheet as of June 1, 2005		101
Statements of Shareholders’ Equity (Deficiency) and Comprehensive Loss for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004		102
Statements of Cash Flows for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004		103
Notes to Financial Statements		104

56

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
Hawaiian Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Hawaiian Holdings, Inc. (the Company) as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity (deficiency) and comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 10 to the consolidated financial statements, the Company adopted, effective January 1, 2006, Statement of Financial Accounting Standards No. 123 (revised 2004), “Share Based Payment”, and, as discussed in Note 9 to the consolidated financial statements, the Company adopted, effective December 31, 2006, Statement of Financial Accounting Standards No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88 and 106 and 132(R)”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Hawaiian Holdings, Inc.’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2007, expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
Honolulu, Hawaii
March 15, 2007

57

Hawaiian Holdings, Inc.
Consolidated Statements of Operations
For the Years ended December 31, 2006, 2005 and 2004

	Year ended December 31,
	2006				2005(*)				2004(**)
	(in thousands, except per share data)
Operating Revenue:
Passenger		$	796,821			$	458,117			$	—
Cargo		32,181				19,252				—
Charter		9,486				6,017				—
Other		49,559				25,381				—
Total		888,047				508,767				—
Operating Expenses:
Aircraft fuel, including taxes and oil		241,660				131,426				—
Wages and benefits		228,010				134,335				—
Aircraft rent		109,592				63,392				—
Maintenance materials and repairs		69,606				33,327				—
Aircraft and passenger servicing		52,655				29,093				—
Commissions and other selling		48,575				25,246				—
Depreciation and amortization		28,865				15,937				—
Other rentals and landing fees		25,720				14,182				—
Other		80,194				59,799				7,266
Total		884,877				506,737				7,266
Operating Income (Loss)		3,170				2,030				(7,266		)
Nonoperating Income (Expense):
Interest and amortization of debt discount and issuance costs		(17,476		)		(9,030		)		—
Losses due to redemption, prepayment, extinguishment and modification of long-term debt and lease agreements		(34,798		)		(4,214		)		—
Interest income		11,338				4,658				4
Capitalized interest		3,769				—				—
Other, net		(7,013		)		17,030				—
Total		(44,180		)		8,444				4
Income (Loss) Before Income Taxes		(41,010		)		10,474				(7,262		)
Income tax expense (benefit)		(463		)		22,840				—
Net Loss		$	(40,547	)		$	(12,366	)		$	(7,262	)
Net Loss Per Common Stock Share:
Basic		$	(0.86	)		$	(0.31	)		$	(0.24	)
Diluted		$	(0.86	)		$	(0.31	)		$	(0.24	)
Weighted Average Number of Common Stock Shares Outstanding:
Basic		47,153				39,250				29,651
Diluted		47,153				39,250				29,651

(*)Includes the deconsolidated results of operations of Hawaiian Holdings, Inc. from January 1, 2005 through June 1, 2005,  and the consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. from June 2, 2005 through December 31, 2005.

(**)Includes only the deconsolidated results of operations of Hawaiian Holdings, Inc. for the entire period presented.

See accompanying Notes to Consolidated Financial Statements.

58

Hawaiian Holdings, Inc.
Consolidated Balance Sheets
December 31, 2006 and 2005

	December 31,
	2006			2005
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	66,852		$	130,155
Restricted cash	53,719			53,420
Short term investments	47,630			23,233
Total cash, restricted cash and short term investments	168,201			206,808
Accounts receivable, net of allowance for doubtful accounts of $498 and $912 as of December 31, 2006 and 2005, respectively	39,304			35,278
Spare parts and supplies, net	15,462			14,578
Deferred tax assets	17,609			9,269
Prepaid expenses and other	19,120			21,673
Total	259,696			287,606
Property and equipment, net
Flight equipment	237,685			14,494
Other property and equipment	52,096			42,534
	289,781			57,028
Less accumulated depreciation and amortization	(17,167		)	(5,751		)
Total	272,614			51,277
Other Assets:
Long-term prepayments and other	31,454			29,253
Intangible assets, net of accumulated amortization of $37,110 and $13,936 as of December 31, 2006 and 2005, respectively	162,560			191,205
Goodwill	93,629			107,179
Total Assets	$	819,953		$	666,520
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	51,918		$	39,089
Air traffic liability	180,539			162,638
Other accrued liabilities	38,402			62,969
Current maturities of long-term debt and capital lease obligations	22,992			13,064
Total	293,851			277,760
Long-Term Debt and Capital Lease Obligations	238,381			77,576
Other Liabilities and Deferred Credits:
Accumulated pension and other postretirement benefit obligations	127,280			196,831
Other liabilities and deferred credits	59,195			57,017
Deferred income taxes	17,609			9,269
Total	204,084			263,117
Commitments and Contingent Liabilities
Shareholders’ Equity:
Preferred stock, three shares issued and outstanding at December 31, 2006 and 2005	—			—
Common stock, 46,583,914 shares and 45,349,100 shares issued and outstanding at December 31, 2006 and 2005, respectively	466			453
Capital in excess of par value	210,892			203,479
Accumulated deficit	(184,268		)	(143,721		)
Accumulated other comprehensive income (loss):
Funded status of pension and postretirement benefits	56,743			—
Loss on hedge instruments	(196		)	(12,144		)
Total	83,637			48,067
Total Liabilities and Shareholders’ Equity	$	819,953		$	666,520

See accompanying Notes to Consolidated Financial Statements.

59

Hawaiian Holdings, Inc.
Consolidated Statements of Shareholders’ Equity (Deficiency) and Comprehensive Loss
For the Years ended December 31, 2006, 2005 and 2004

															Accumulated
				Special			Capital In								Other
	Common			Preferred			Excess of				Accumulated				Comprehensive
	Stock (*)			Stock (**)			Par Value				Deficit				Income (Loss)				Total
	(in thousands, except share data)
Balance at December 31, 2003		$	285		$	—		$	60,077			$	(124,093	)		$	—		$	(63,731	)
Net and comprehensive loss		—			—			—				(7,262		)		—			(7,262		)
Issuance of 1,001,062 shares		10			—			5,572				—				—			5,582
Exercise of options to acquire 1,294,000 shares		12			—			4,107				—				—			4,119
Cancellation of four shares of Series A Preferred Stock		—			—			—				—				—			—
Balance at December 31, 2004		307			—			69,756				(131,355		)		—			(61,292		)
Net loss		—			—			—				(12,366		)		—			(12,366		)
Unrealized loss on hedge instruments		—			—			—				—				(12,144		)	(12,144		)
Comprehensive loss		—			—			—				—				—			(24,510		)
Issuance of 14,123,873 shares pursuant to the Joint Plan		141			—			91,664				—				—			91,805
Exercise of options to acquire 474,000 shares		5			—			1,208				—				—			1,213
Intrinsic value of beneficial conversion feature of 5% subordinated convertible notes		—			—			27,750				—				—			27,750
Fair value of warrants issued with 5% subordinated convertible notes		—			—			13,540				—				—			13,540
Repurchases of warrants issued with 5% subordinated convertible notes		—			—			(902		)		—				—			(902		)
Non-employee stock option compensation		—			—			356				—				—			356
Excess tax benefit from exercise of stock options		—			—			107				—				—			107
Balance at December 31, 2005		453			—			203,479				(143,721		)		(12,144		)	48,067
Net loss		—			—			—				(40,547		)		—			(40,547		)
Unrealized income on hedge instruments		—			—			—				—				11,948			11,948
Comprehensive loss		—			—			—				—				—			(28,599		)
Exercise of options to acquire 352,000 shares of common stock		3			—			948				—				—			951
Distribution of 882,814 shares of common stock pursuant to stock bonus plan		10			—			4,000				—				—			4,010
Adjustment to beneficial conversion feature resulting from the redemption of the 5% subordinated convertible notes		—			—			(9,054		)		—				—			(9,054		)
Fair value of warrants issued with long-term debt		—			—			6,280				—				—			6,280
Share-based compensation		—			—			5,048				—				—			5,048
Excess tax benefits from exercise of stock options		—			—			191				—				—			191
Impact of adoption of SFAS 158		—			—			—				—				56,743			56,743
Balance at December 31, 2006		$	466		$	—		$	210,892			$	(184,268	)		$	56,547		$	83,637

(*)Common Stock—$0.01 par value; 118,000,000 authorized as of December 31, 2006 and 2005.

(**)Special Preferred Stock—$0.01 par value; 2,000,000 shares authorized as of December 31, 2006 and 2005.

See accompanying Notes to Consolidated Financial Statements.

60

Hawaiian Holdings, Inc.
Consolidated Statements of Cash Flows
For the Years ended December 31, 2006, 2005 and 2004

	Year ended December 31,
	2006			2005(*)			2004(**)
	(in thousands)
Cash Flows From Operating Activities:
Net loss	$	(40,547	)	$	(12,366	)		$	(7,262	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities before reorganization activities:
Amortization of intangible assets	23,839			13,936				—
Depreciation and amortization of property and equipment	11,477			5,794				—
Deferred income taxes	—			24,865
Stock compensation	5,048			4,396				—
Losses due to redemption, prepayment, extinguishment and modification of long-term debt	34,798			4,223
Amortization of debt discounts and issuance costs	3,543			3,771				—
Pension and postretirement benefit cost	14,435			7,337				—
Other, net	(3,090		)	(2,226		)		—
Changes in operating assets and liabilities:
Restricted cash	(299		)	4,528				—
Accounts receivable	(2,701		)	21,214				—
Spare parts and supplies	(2,302		)	(3,087		)		—
Prepaid expenses and other current assets	14,501			(2,788		)		(100		)
Accounts payable	13,121			(9,026		)		(178		)
Air traffic liability	17,901			9,709				—
Other accrued liabilities	(19,671		)	(4,264		)		289
Other assets and liabilities, net	(6,910		)	(8,090		)		(282		)
Net cash provided by (used in) operating activities	63,143			57,926				(7,533		)
Cash Flows From Investing Activities:
Acquisition of Hawaiian Airlines, Inc	—			91,280				—
Additions to property and equipment	(236,335		)	(7,374		)		—
Net sales (purchases) of short-term investments	(24,397		)	(828		)		—
Net cash provided by (used in) investing activities	(260,732		)	83,078				—
Cash Flows From Financing Activities:
Proceeds from issuance of common stock	—			—				9,701
Tax benefit from stock option exercise	191			—				—
Proceeds from exercise of stock options	951			1,212				—
Long-term borrowings	217,250			—				—
Repayments of long-term debt and capital lease obligations	(24,321		)	(6,508		)		—
Repurchase of subordinated convertible notes and warrants	(54,891		)	(7,722		)		—
Debt issuance costs	(4,894		)	—				—
Net cash provided by (used in) financing activities	134,286			(13,018		)		9,701
Net increase (decrease) in cash and cash equivalents	(63,303		)	127,986				2,168
Cash and cash equivalents—Beginning of Period	130,155			2,169				1
Cash and cash equivalents—End of Period	$	66,852		$	130,155			$	2,169

(*)Includes the deconsolidated cash flows of Hawaiian Holdings, Inc. from January 1, 2005 through June 1, 2005, and the consolidated cash flows of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. from June 2, 2005 through December 31, 2005.

(**)Includes only the deconsolidated cash flows of Hawaiian Holdings, Inc. for the entire period presented.

61

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements

1.Business and Organization

Hawaiian Holdings, Inc. (the Company or Holdings) is a holding company incorporated in the State of Delaware. The Company’s primary asset is its sole ownership of all issued and outstanding shares of common stock of Hawaiian Airlines, Inc. (Hawaiian). Hawaiian was incorporated in January 1929 under the laws of the Territory of Hawaii and, based on the total number of miles flown by revenue passengers in 2006, was the largest airline headquartered in Hawaii and the seventeenth largest domestic airline in the United States. Hawaiian is engaged primarily in the scheduled air transportation of passengers and cargo. Hawaiian provides passenger and cargo service from Hawaii, principally Honolulu, to nine Western United States cities (transpacific). Hawaiian also provides daily direct service to four of the six major islands and directly through an arrangement with Island Air to two of the six major islands of the State of Hawaii (interisland) and weekly service to each of Pago Pago, American Samoa and Papeete, Tahiti in the South Pacific (South Pacific) and Sydney, Australia. Charter service is also provided from Honolulu to Anchorage, Alaska (Charter). As of December 31, 2006, Hawaiian operated a fleet of 11 Boeing 717-200 aircraft for its interisland routes and a fleet of 15 Boeing 767-300 aircraft for its transpacific, South Pacific and charter routes.

As further described in Note 2, on April 1, 2003, following Hawaiian’s bankruptcy filing, the Company deconsolidated Hawaiian for financial reporting purposes and accounted for its ownership of Hawaiian using the cost method of accounting. As further discussed in Note 4, on June 2, 2005, the Company reconsolidated Hawaiian upon Hawaiian’s emergence from bankruptcy protection in a transaction accounted for as a business combination. As a result, for financial reporting purposes, the Company was a holding company with no business operations or properties for the period April 1, 2003 through June 1, 2005. Accordingly, as used in this report, the terms “Company”, “we”, “our”, and “us” refer to (i) Hawaiian Holdings, Inc. only, with respect to the period from April 1, 2003 through June 1, 2005; and (ii) Hawaiian Holdings, Inc. and its consolidated subsidiaries, including Hawaiian Airlines, Inc., with respect to the periods from and after June 2, 2005.

2.Reorganization and Reacquisition of Hawaiian

On March 21, 2003 (the Petition Date), Hawaiian filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the Bankruptcy Code) in the U.S. Bankruptcy Court for the District of Hawaii (the Bankruptcy Court). At the time of the bankruptcy, the Company’s then-current management expected the Company to regain full control of Hawaiian in a short period of time. The Company had renegotiated the collective bargaining agreements with Hawaiian’s pilots, mechanics, and flight attendants prior to the Chapter 11 filing, Hawaiian had minimal secured debt or other secured non-aircraft claims, and management believed Hawaiian’s operating leases could be renegotiated quickly through the Chapter 11 bankruptcy process. Furthermore, the Company and Hawaiian continued to have a common board of directors and common management. However, those expectations proved incorrect as the subsequent filing of a motion seeking the appointment of a bankruptcy trustee created significant uncertainty regarding the Company’s ability to facilitate a timely reorganization and to regain full control of Hawaiian, which uncertainty was confirmed on May 16, 2003 by the Bankruptcy Court’s issuance of an order appointing a Chapter 11 trustee (the Trustee) to manage and operate Hawaiian’s business instead of the Company’s and Hawaiian’s common board of directors and management.

At the time of the bankruptcy filing, the Company’s management publicly stated that they believed the bankruptcy case would be relatively short. However, Hawaiian’s bankruptcy case eventually continued over 26 months and involved not only the renegotiation of Hawaiian’s aircraft leases, but also the renegotiation

62

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

of all of Hawaiian’s labor agreements, significant changes to the defined benefit plan for Hawaiian’s pilots, changes to Hawaiian’s route structure and other restructuring activities. During the period subsequent to the appointment of the Trustee until Hawaiian’s emergence from bankruptcy on June 2, 2005, the Company had no control or significant influence over Hawaiian, or access to nonpublic financial or operating information of Hawaiian. The Trustee was in charge of operating Hawaiian’s business, and the Bankruptcy Court had to approve all significant actions taken by the Trustee. Also, during this period of time, Hawaiian’s operating results and business prospects improved significantly due to several factors, including both the actions taken by Hawaiian in bankruptcy under the direction of the Trustee and general improvements in the markets served by Hawaiian. As a result of these improvements, the enterprise value of Hawaiian increased significantly during the bankruptcy case such that all creditors ultimately received payment in full of all allowed claims (excluding interest thereon), including the aircraft lease claims and all unsecured claims.

During 2004, after Hawaiian’s operating results and business prospects improved, the Trustee, under a process approved by the Bankruptcy Court, began soliciting bids for potential investors in Hawaiian. Twenty-two parties expressed an interest in investing in Hawaiian as part of a plan of reorganization. As all of the competitive bids received by the Trustee provided that the Company would have no future equity interest in Hawaiian, there was significant uncertainty as to whether the Company would ever regain control of Hawaiian. It was not until August 2004, after new management was in place at the Company, that the Company and the Trustee negotiated the Joint Plan of Reorganization (the Joint Plan) that was ultimately selected by the Trustee and approved by the Bankruptcy Court as Hawaiian’s plan of reorganization.

63

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

The following table summarizes the classification and treatment of claims under the Joint Plan (in millions):

Class	Classification	Treatment under the Joint Plan	Cash		Long-Term Obligations			Common Stock
Unclassified	Unsecured Priority Tax Claims	In cash, paid in 24 equal quarterly installments.	$	1.2		$	29.5		$	—
Class 1 (Unimpaired)	Secured Priority Tax Claims	In cash, paid in accordance with the legal, equitable and contractual rights of the holder of the claim.	0.9			—			—
Class 2 (Unimpaired)	Other Secured Claims	Generally, at the election of Hawaiian, (i) cash, (ii) surrender of the collateral securing the claim, (iii) cure and reinstatement, or (iv) retention by the holder of the claim of its legal, equitable and contractual rights.	1.3			1.2			—
Class 3 (Unimpaired)	Other Priority Claims	Cash	0.1			—			—
Class 4 (Impaired)	Unsecured Claims not included in a category below	Cash equal to 100% of the allowed claim.	31.7			—			—
Class 5 (Impaired)	Lease Related Claims	A combination of cash, common stock of the Company based on a stock value of $616 per share, and subordinated convertible notes of the Company.	27.0			60.0			87.0
Class 6 (Impaired)	Convenience Claims	Cash	0.8			—			—
Class 7 (Impaired/ Unimpaired)	Equity Interests	Holders of equity interests in Hawaiian retained their interests in the reorganized Hawaiian, without modification or alteration by the Joint Plan However, the Company was required to issue new common stock to creditors of Hawaiian, which resulted in a dilution of the ownership interest of the Company’s common shareholders.	—			—			—
		Total	$	63.0		$	90.7		$	87.0

The Joint Plan provided for payment in full of all allowed claims, including unsecured claims, and was financed through the issuance of approximately 14.1 million shares of the Company’s common stock, a private placement by the Company of $60.0 million of 5% subordinated convertible notes, and by two secured credit facilities undertaken by Hawaiian for $75 million of variable rate and fixed rate debt (the Term A and Term B Credit Facility, respectively), as discussed further in Note 6. The Joint Plan also provided for the merger of Hawaiian Airlines, Inc., a Hawaii corporation, with and into HHIC, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (HHIC), with HHIC as the surviving entity immediately changing its name to Hawaiian Airlines, Inc.

The consummation of the Joint Plan resulted in the Company regaining control of Hawaiian, which it did not have subsequent to the appointment of the Trustee, by redeeming claims of creditors that had equity-like characteristics because they had a higher priority claim to the assets of Hawaiian than the

64

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

common stock interests owned by the Company. Additionally, in order to regain control of Hawaiian, the Company had been required to bid against other potential buyers for the assets of Hawaiian in a process that treated the Company as a potential buyer and not a controlling shareholder. Therefore, purchase accounting was applied, and the assets and liabilities of Hawaiian were recorded in the Company’s consolidated financial statements at their fair values as of June 2, 2005, and the results of Hawaiian’s operations are included in the Company’s consolidated results of operations from that date.

As used hereinafter in this report, the term “Hawaiian” refers to the predecessor company for all periods prior to the merger with HHIC, and the successor company for all periods subsequent to the merger with HHIC.

3.Summary of Significant Accounting Policies

Basis of Presentation

Prior to Hawaiian’s bankruptcy, the Company consolidated Hawaiian pursuant to Statement of Financial Accounting Standards (SFAS) No. 94, “Consolidation of All Majority-Owned Subsidiaries”, because the Company controlled Hawaiian through its ownership of all of the voting stock of Hawaiian. Effective April 1, 2003, the Company deconsolidated Hawaiian and prospectively accounted for its ownership of Hawaiian using the cost method of accounting until the Company regained control of Hawaiian on June 2, 2005. The Company accounted for Hawaiian’s emergence from bankruptcy as a business combination, with the assets and liabilities of Hawaiian recorded in the Company’s consolidated financial statements at their fair values as of June 2, 2005, and the results of operations of Hawaiian included in the Company’s consolidated results of operations since June 2, 2005.

Summary Financial Information of Hawaiian Airlines

Hawaiian is a predecessor of the Company, as defined in Rule 405 of Regulation C under the Securities Act, and as a result separate financial statements of Hawaiian, prepared in accordance with Article 10 of Regulation S-X of the Securities and Exchange Commission (SEC), up until the point at which Hawaiian was reacquired by the Company, are included in this Annual Report on Form 10-K. Summary financial information of Hawaiian, up until the point at which it emerged from bankruptcy and was reacquired by the Company, is presented below.

	Period
	January 1, 2005
	through				Year ended
	June 1, 2005				December 31, 2004
	(in thousands)
Operating revenue		$	321,150			$	763,965
Operating expenses		309,080				692,882
Operating income		12,070				71,083
Reorganization items, net		887				(129,520		)
Other nonoperating income (expense)		2,909				(187		)
Income (loss) before income tax expense		15,866				(58,624		)
Income tax expense		18,572				16,816
Net loss		$	(2,706	)		$	(75,440	)

65

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

Hawaiian’s financial statements, from which the above summarized financial information was derived, were prepared in accordance with American Institute of Certified Public Accountants’ Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7), and on a going concern basis, which assumes continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. SOP 90-7 requires that the financial statements for periods subsequent to a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, professional fees, realized gains and losses, and provisions for losses) directly associated with Hawaiian’s reorganization and restructuring are reported separately as reorganization items in its statements of operations. Hawaiian’s financial statements do not give effect to any adjustments to the carrying values of the assets or the amounts of liabilities of Hawaiian resulting from and occurring subsequent to the consummation of the Joint Plan.

Cash Equivalents

The Company considers all investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

At December 31, 2006 and 2005, restricted cash consisted primarily of cash deposits held by institutions that process credit card transactions for advance ticket sales (which funds are subsequently made available to Hawaiian as the related air travel is provided).

Spare Parts and Supplies

Spare parts and supplies consist primarily of expendable parts for flight equipment and other supplies that are valued at average cost. An allowance for obsolescence is provided over the estimated useful lives of the related aircraft and engines for spare parts expected to be on hand at the date the aircraft are retired from service. An allowance is also provided to reduce the carrying costs of excess spare parts to the lower of amortized cost or net realizable value. These allowances are based on management’s estimates and are subject to change.

Property and Equipment

Owned property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:

Aircraft and engines	7-20 years, 0%-15% residual value
Major rotable parts	12 years, 15% residual value
Improvements to leased flight equipment	Shorter of lease term or useful life
Leasehold improvements	Shorter of lease term or useful life
Furniture, fixtures and other equipment	3-7 years, no residual value
Capitalized software	3-7 years, no residual value

66

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

Aircraft Maintenance and Repair Costs

Aircraft maintenance and repairs are charged to operations as incurred, except for charges for maintenance and repairs incurred under power-by-the-hour maintenance contracts that are accrued and expensed based on hours flown. Modifications that significantly enhance the operating performance and/or extend the useful lives of property and equipment are capitalized and amortized over the lesser of the remaining life of the asset or the lease term, as applicable.

Maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities are recorded as a deposit, to the extent recoverable through future maintenance, and then recognized as maintenance expense when the underlying maintenance is performed. Any non-refundable amounts that are not probable of being used to fund future maintenance expense are recognized as additional aircraft rental expense. In determining whether it is probable that maintenance deposits will be used to fund the cost of maintenance events, management considers the condition, including the airframe, the engines, the auxiliary power unit and the landing gear, of the related aircraft, the projected future usage of the aircraft during the term of the lease based on the Company’s business and fleet plan, and the estimated cost of performing all required maintenance during the lease term. These estimates are based on the experience of the Company’s maintenance personnel and industry available data, including historical fleet operating statistics reports published by the aircraft and engine manufacturers. As of December 31, 2006, based on this assessment, management determined that it was probable that all maintenance deposits recorded as an asset in the accompanying consolidated balance sheet will be used to fund the cost of maintenance events and are therefore recoverable.

Impairment of Long-Lived Assets

Goodwill and intangible assets with indefinite lives are not amortized, but are tested for impairment at least annually using a “two-step process.” The first step of the test is to identify a potential impairment. The second step of the test is measure the amount of the impairment loss, if required, at fair value. Management reviewed the carrying values of goodwill and intangible assets pursuant to the applicable provisions of SFAS No. 142 and has concluded that as of December 31, 2006 such carrying values were not impaired nor was there any need to adjust the remaining useful lives for those intangible assets subject to amortization. In the event that the Company determines that the values of goodwill or intangible assets with indefinite lives have become impaired, the Company will incur an accounting charge for the fair value amount of the impairment during the quarter in which such determination is made. Changes in the estimated useful lives of intangible assets, if any, will be accounted for prospectively over such revised useful lives.

Long-lived assets used in operations, consisting principally of property and equipment, and intangible assets subject to amortization are tested for impairment when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The net carrying value of assets not recoverable is reduced to fair value if lower than carrying value. In determining the fair market value of the assets, the Company considers market trends, recent transactions involving sales of similar assets and, if necessary, estimates of future discounted cash flows.

67

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

Revenue Recognition

Passenger revenue is recognized either when the transportation is provided or when tickets expire unused. The value of passenger tickets for future travel is included as air traffic liability. Hawaiian performs periodic evaluations of this estimated liability and any resulting adjustments, which can be significant, are included in the results of operations for the periods in which the evaluations are completed. Charter and cargo revenue is recognized when the transportation is provided.

Hawaiian sells mileage credits in its HawaiianMiles frequent flyer program to participating companies such as hotels, car rental agencies and credit card companies. A portion of the revenue from the sale of mileage credits is deferred and recognized as passenger revenue when transportation is likely to be provided, based on the fair value of the transportation to be provided. Amounts in excess of the fair value of the transportation to be provided are recognized immediately as other operating revenue. Prior to 2006, these amounts were recognized on a comparable basis but were classified as a reduction in other operating expenses. For the year ended December 31, 2005, $4.4 million has been reclassified from other operating expense to other operating income to conform to the current year presentation.

Other components of other operating revenue include ticket change fees, ground handling fees, commissions and fees earned under certain joint marketing agreements with other companies and other incidental sales that are recognized as revenue when the related goods and services are provided.

Frequent Flyer Program

HawaiianMiles, Hawaiian’s frequent flyer travel award program, provides a variety of awards to program members based on accumulated mileage. The estimated cost of providing free travel on Hawaiian or on certain other airlines, and for goods and services provided by other participating partners, is recognized as a liability and charged to operations as program members accumulate mileage. The incremental cost for travel provided by Hawaiian includes the cost of fuel, passenger meals, beverages and other in-flight supplies, passenger liability insurance, reservations and ticketing, but does not include any costs for aircraft ownership, maintenance, labor or overhead allocation. The liability is adjusted periodically based on awards earned, awards redeemed, changes in the incremental costs and changes in the HawaiianMiles program. A change to the cost estimates, the actual redemption activity, or the amount of redemptions on partner airlines could have a significant impact on the frequent flyer liability in the period of change as well as in future years.

Commissions and Other Selling Expenses

Commissions and other selling expenses include credit card commissions, the costs of free travel and other awards provided by HawaiianMiles, advertising and promotional expenses and computer reservation systems charges, as well as commissions paid to outside agents for the sales of passenger and cargo traffic. Sales commissions are deferred when paid and are subsequently recognized as expense when the related revenue is recognized. Prepaid sales commissions are included in prepaid expenses and other current assets in the accompanying balance sheets. All other components of commissions and other selling expenses, including advertising costs, are expensed when incurred. Advertising expense was $8.8 million and $4.9 million, for the years ended December 31, 2006 and 2005, respectively, during those periods in which the Company consolidated Hawaiian.

68

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements  (Continued)

Basic Earnings Per Share

Net income or loss per share is reported in accordance with SFAS No. 128, “Earnings Per Share” (SFAS 128). Under SFAS 128, basic earnings per share, which excludes dilution, is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Under Emerging Issues Task Force (EITF) Consensus 03-6, “Participating Securities and the Two-Class Method under SFAS No. 128, Earnings Per Share”, warrants that participate in dividends and/or distributions as if they were common stock are considered participating securities. Therefore, the Company is required to use the two-class method shown below (in thousands, except per share data):

	Year Ended December 31,
	2006			2005			2004
Net loss	$	(40,547	)	$	(12,366	)	$	(7,262	)
Less: amount allocated to participating warrants	—			210			—
Net loss available to common shareholders—Basic	(40,547		)	(12,156		)	(7,262		)
Weighted average common shares outstanding	47,153			39,250			29,651
Basic loss per share	$	(0.86	)	$	(0.31	)	$	(0.24	)

Diluted Earnings Per Share

Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share uses the treasury stock method for in-the-money stock options, warrants and restricted stock, and the if-converted method for the assumed conversion of convertible debt (in thousands, except per share data).

	Year Ended December 31,
	2006			2005			2004
Net loss	$	(40,547	)	$	(12,366	)	$	(7,262	)
Less: amount allocated to participating warrants	—			210			—
Net loss available to common shareholders—Diluted	(40,547		)	(12,156		)	(7,262		)
Weighted average common shares outstanding	47,153			39,250			29,651
Assumed exercise of stock options	—			—			—
Assumed exercise of convertible notes	—			—			—
Adjusted weighted average shares—Diluted	47,153			39,250			29,651
Diluted loss per share	$	(0.86	)	$	(0.31	)	$	(0.24	)

Approximately 2.6 million, 2.8 million, and 1.5 million of options to purchase shares of the Company’s common stock were not included in the computation of diluted earnings per share for the years ended December 31, 2006, 2005, and 2004, respectively, because the options’ exercise price was greater than the average market price of the common shares or the effect of including the options would have been antidilutive. In addition, 9.0 million and 3.9 million potential common shares related to common stock warrants and 3.6 million and 7.7 million potential common shares related to convertible debt securities, were excluded from the computation of diluted earnings per share for the year ended December 31, 2006 and 2005, respectively, because they were antidilutive.

69

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Stock Option Plans

The Company has a stock option plan for its officers and non-employee directors and a stock bonus plan for all of its other employees. Effective January 1, 2006, the Company adopted SFAS 123R to account for grants and awards made under these plans. SFAS 123R supersedes APB 25 and replaces SFAS 123. Prior to its adoption of SFAS 123R, the Company accounted for its stock option and stock bonus plans pursuant to APB 25 and related Interpretations, and the pro forma disclosure provisions of SFAS 123, as amended by SFAS No. 148. See Note 10.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.

Reclassifications

Certain amounts for prior periods have been reclassified to conform to the current year presentation.

Segment Information

The Company has no operations other than the operations of its wholly-owned subsidiary, Hawaiian. Principally all operations of Hawaiian either originate and/or end in the State of Hawaii. The management of such operations is based on a system-wide approach due to the interdependence of Hawaiian’s route structure in its various markets. Hawaiian operates as a matrix form of organization as it has overlapping sets of components for which managers are held responsible. Managers report to Hawaiian’s chief operating decision-maker on both Hawaiian’s geographic components and Hawaiian’s product and service components, resulting in the components based on products and services constituting one operating segment. As Hawaiian offers only one significant line of business (i.e., air transportation), management has concluded that it has only one segment.

Pending Adoption of Recently Issued Accounting Pronouncement

In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48), an interpretation of Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (SFAS 109), to create a single model to address accounting for uncertainty in tax positions. FIN 48 utilizes a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties in income tax positions. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings. The Company does not expect that the adoption of FIN 48 will have a significant impact on the Company’s financial position and results of operations.

4.   Business Combination

As discussed in Note 2, from the period April 1, 2003 through June 1, 2005, during which time the Company did not control Hawaiian, the Company deconsolidated Hawaiian for financial reporting purposes and accounted for its ownership of Hawaiian using the cost method of accounting. In connection with Hawaiian’s reorganization and emergence from bankruptcy, the Company issued debt and equity

70

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

securities to holders of certain claims in Hawaiian’s bankruptcy case in order to consummate the Joint Plan and to regain control of Hawaiian at the Effective Date. The Company’s reacquisition of Hawaiian was accounted for as a business combination, and Hawaiian’s results of operations are included in the Company’s results of operations since June 2, 2005.

Under the Joint Plan, holders of lease-related claims received full payment of their approved claims in a combination of cash, common stock of the Company, and subordinated convertible notes issued by the Company, as is discussed in Note 6. Holders of other claims received full payment of their claims in cash. On the Effective Date, the Company issued approximately 14.1 million shares of common stock pursuant to the Joint Plan. In accordance with EITF Consensus 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination”, the common stock was valued at $6.50 per share for accounting purposes. This price represents the average closing price per share for the five-day period prior to and including November 2, 2004, the date upon which the number of shares of the Company’s common stock issued under the Joint Plan was finalized. The Company’s total purchase price for Hawaiian was as follows (in thousands):

Common stock	$	91,805
Issuance of subordinated convertible notes	60,000
Cash payments made to holders of claims against Hawaiian	48,257
Accruals for estimated unpaid claims	18,246
Total estimated purchase price	$	218,308

The reacquisition of Hawaiian was accounted for under the purchase method of accounting in accordance with SFAS No. 141, “Business Combinations” (SFAS 141). Accordingly, the total purchase price was allocated to the net tangible and intangible assets of Hawaiian based on their fair values as of the date of acquisition. The following table summarizes the fair values initially allocated to Hawaiian’s assets and liabilities at the date of acquisition, which fair values were determined by management with the assistance of independent valuation specialists for certain of the significant acquired assets and assumed liabilities (in thousands).

Assets
Cash and cash equivalents	$	113,685
Restricted cash	57,448
Accounts receivable	51,433
Spare parts and supplies	13,130
Deferred taxes, net	13,576
Prepaid expenses and other	30,984
Property and equipment	49,530
Long-term prepayments and other	24,928
Intangible assets	205,560
Goodwill	105,823
Liabilities
Accounts payable	$	47,623
Air traffic liability	152,929
Accrued liabilities	47,013
Debt and capital lease obligations	78,352
Accumulated pension and other postretirement benefit obligations	200,777
Other liabilities	50,321

71

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Of the total estimated purchase price, $192.1 million was ultimately allocated to amortizable intangible assets, and $13.0 million was allocated to intangible assets with indefinite lives. The Company ultimately recorded $93.6 million of goodwill representing the estimated purchase price in excess of the fair value of the tangible and intangible assets acquired and the liabilities assumed. Intangible assets with indefinite lives consist of the estimated fair value allocated to the Hawaiian Airlines trade name, which was determined to have an indefinite useful life due to several factors and considerations, including the length of time that the Hawaiian Airlines trade name has been in use, the Hawaiian Airlines brand awareness and market position, and the assumed continued use of the Hawaiian Airlines trade name.

The difference between the $93.6 million carrying value of goodwill as of December 31, 2006 and the $105.8 million of goodwill recorded at June 2, 2005 is primarily due to a $13.3 million correction to reduce the accumulated pension benefit obligation at June 2, 2005. The remaining difference is due to net adjustments resulting from the finalization of appraisals done by independent valuation specialists of certain of the assets acquired and liabilities assumed by the Company (preliminary appraisals of such assets and liabilities had been used to initially record such assets and liabilities), and the recognition of certain contingent assets and liabilities. See Note 9 for further discussion of the $13.3 million correction of the accumulated benefit obligation.

The following table summarizes the gross carrying values of intangible assets less accumulated amortization as of December 31, 2006, and the useful lives assigned to each asset. During the year ended December 31, 2006, the Company reduced the aircraft and engine lease intangible asset and accumulated amortization by $5.5 million and $0.7 million, respectively, related to certain aircraft and engine leases with AWMS I, an affiliate of AWAS (formerly Ansett Worldwide Aviation Services, Inc., along with its affiliates, including AWMS I, referred to herein as “AWAS”) that the Company terminated and modified in December 2006 (see Note 7).

	Gross carrying value			Accumulated amortization				Net book value			Approximate useful life (years)
	(in thousands)
Frequent flyer program—marketing relationships		$	119,900		$	(25,308	)		$	94,592		7.5
Favorable aircraft and engine leases		32,710			(7,530		)		25,180			8.5	(*)
Favorable aircraft maintenance contracts		18,200			(2,049		)		16,151			14	(*)
Frequent flyer program—customer relations		12,200			(1,748		)		10,452			11
Hawaiian Airlines trade name		13,000			—				13,000			Indefinite
Operating certificates		3,660			(475		)		3,185			12
Total intangible assets		$	199,670		$	(37,110	)		$	162,560

(*)Weighted average based on gross carrying values and estimated useful lives as of June 2, 2005. The range of useful lives was from approximately 16 years for a favorable aircraft lease to approximately six years for a favorable aircraft maintenance contract.

Amortization expense related to the above intangible assets were $23.8 million and $13.9 million, respectively for the year ended December 31, 2006 and the period June 2, 2005 through December 31, 2005. Amortization of the favorable aircraft and engine leases and the favorable aircraft maintenance

72

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

contracts is included in aircraft rent and maintenance materials and repairs, respectively, in the accompanying consolidated statement of operations for the years ended December 31, 2006 and 2005. The estimated future amortization expense as of December 31, 2006 of the intangible assets subject to amortization is as follows (in thousands):

2007	$	23,448
2008	23,448
2009	23,448
2010	23,448
2011	23,347
Thereafter	32,421
	$	149,560

The following table presents pro forma financial information as if the business combination had occurred on January 1, 2005 (in thousands, except per share data).

	Year ended
	December 31, 2005
Operating revenue		$	818,013
Operating loss		(137		)
Income (loss) before income taxes		6,512
Net loss		(26,969		)
Net Loss Per Common Stock Share:
Basic and diluted		$	(0.59	)
Weighted Average Number of Common Stock Shares Outstanding:
Basic and diluted		45,856

5.Financial Instruments and Fuel Risk Management

Financial Instruments

Short term investments as of December 31, 2006 and 2005 consisted of (in thousands):

	December 31,
	2006		2005
Auction rate securities	$	27,975	$	—
Foreign bonds	9,184		5,087
U.S. government agency mortgages	6,486		8,487
U.S. government agency notes	3,985		5,951
Corporate and bank notes	—		3,708
	$	47,630	$	23,233

73

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Short term investments at December 31, 2006, by contractual maturity included (in thousands):

Due in one year or less	$	7,002
Due between one and two years	5,544
Due after two years	35,084
	$	47,630

All short term investments are classified as available-for-sale and stated at fair value. Gross realized and unrealized gains and losses are not material for all periods presented. The Company’s short term investments as of December 31, 2005 were previously classified within cash equivalents. However, in connection with the preparation of these annual financial statements, the Company determined that these investments were more appropriately classified as short term investments and made the resulting reclassifications in the accompanying financial statements, the effect of which was to lower each of cash and cash equivalents as of December 31, 2005, and cash provided by investing activities for the year then ended, by $23.2 million.

The fair value of the Company’s debt with a carrying value of $260.4 million and $89.5 million at December 31, 2006 and 2005, respectively, was approximately $261.8 million and $111.4 million. These estimates were based on the discounted amount of future cash flows using the Company’s estimated incremental rate of borrowing for similar liabilities as comparable market prices were not available.

The carrying amounts of cash and cash equivalents, restricted cash, short term investments, other receivables and accounts payable approximate their fair value due to their short-term nature.

Fuel Risk Management

The Company has adopted a comprehensive fuel hedging program that provides it with the flexibility of utilizing certain derivative financial instruments, such as heating oil forward contracts and jet fuel forward contracts to manage market risks and hedge its financial exposure to fluctuations in its aircraft fuel costs. Heating oil forward contracts and/or jet fuel forward contracts are utilized to hedge a portion of Hawaiian’s anticipated aircraft fuel needs. The Company accounts for its fuel derivative contracts as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133). The heating oil and jet fuel forward contracts are recorded at fair value in other current assets and/or other current liabilities in the accompanying consolidated balance sheet with the offset to accumulated other comprehensive income (loss), net of applicable income taxes and hedge ineffectiveness, and recognized as a component of fuel expense when the underlying fuel being hedged is used. Any ineffective portion of a change in fair value is immediately recognized into earnings as a component of other nonoperating income (expense). The Company does not hold or issue derivative financial instruments for trading purposes. The notional amounts of derivative financial instruments summarized below do not represent amounts exchanged between parties and, therefore, are not a measure of the Company’s exposure resulting from the use of derivatives. The amounts exchanged are calculated based upon the notional amounts as well as other terms of the instruments.

As of June 2, 2005, Hawaiian had entered into jet fuel forward contracts with a single counterparty to hedge the cost of approximately 45% of its fuel requirements for the subsequent 12-month period. The fair value of the jet fuel forward contracts of $4.7 million was recorded in prepaid expenses upon the Company’s acquisition of Hawaiian. From June 2, 2005 until August 31, 2005, the jet fuel forward contracts

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Hawaiian Holdings, Inc.
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did not qualify as hedges under SFAS 133, because the Company did not have the required documentation during that period. As a result, the increase in the fair value of the jet fuel forward contracts during the period June 2, 2005 through August 31, 2005 of $14.5 million, consisting of both realized and unrealized gains, was recorded as a component of other nonoperating income. As of September 1, 2005, the Company completed, and has subsequently maintained for all periods, its required documentation and designated the effectiveness of their jet fuel forward contracts based on the changes in fair value attributable to changes in spot prices; the change in fair value related to the changes in the difference between the spot price and the forward price (i.e., the spot-forward difference) are excluded from the assessment of hedge effectiveness.

As of December 31, 2006, the Company had hedged approximately 28%, 9% and 1% for the first, second and third quarters of 2007, respectively, using jet fuel forward contracts with a weighted average contract price of $1.95 per gallon. At December 31, 2006, the Company’s fuel hedges outstanding were in a loss position. The fair value of the Company’s obligation related to these contracts was $1.1 million and is included in other current liabilities in the consolidated balance sheet. At December 31, 2005, the Company’s fuel hedges outstanding were in a gain position. The fair value of the jet fuel forward contracts as of December 31, 2005 was $2.4 million and was recorded in prepaid expenses in the consolidated balance sheet.

For the years ended December 31, 2006 and 2005, hedge ineffectiveness was not material. The Company recognized $7.3 million of nonoperating losses and $2.5 million of nonoperating gains related to spot-forward differences for the years ended December 31, 2006 and 2005, respectively. The Company recorded losses of $0.9 million and $4.2 million related to fuel hedging instruments as a component of fuel expense for the years ended December 31, 2006 and 2005, respectively. Realized gains of $0.2 million and unrealized losses of $0.4 million were deferred as a component of accumulated other comprehensive income (loss) on the balance sheet as of December 31, 2006. Realized losses of $0.9 million and unrealized losses of $11.3 million were deferred as a component of accumulated other comprehensive income (loss) on the balance sheet as of December 31, 2005.

The Company does not require collateral or other security to support its derivative financial instruments. Therefore, the Company is exposed to credit risks to the extent of the positive fair value of its jet fuel forward contracts in the event the counterparty fails to meet its obligations; however, the Company does not expect this counterparty to fail to meet its obligations.

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

6.Debt and Common Stock Warrant

Long-term debt as of December 31, 2006 and 2005 consisted of the following obligations:

	2006			2005
Hawaiian Holdings	(in thousands)
5% subordinated convertible notes due June 1, 2010, interest at 5.0%, interest only semi-annual payments	$	—		$	52,278
Less unamortized discount on 5% subordinated convertible notes	—			(34,155		)
	—			18,123
Less current maturities	—			—
	$	—		$	18,123
Hawaiian Airlines
Term A Credit Facility, variable interest rates of 9.75% (base rate loans) and 9.35% (LIBOR rate loans) (weighted average of 9.38% at December 31, 2006), level quarterly principal payments of $2.5 million each plus interest through December 10, 2010 with the remaining balance due at maturity	$	55,000		$	20,833
Term B Credit Facility loan due March 11, 2011, interest at 9%, interest only quarterly payments	62,500			25,000
Secured loans, variable interest rate of 8.72% at December 31, 2006 (LIBOR rate loans), monthly payments of principal and interest through December 2013 with the remaining balance of $52.2 million due at maturity Notes payable, interest at 5.0%, level quarterly principal and interest payments through June 1, 2011	126,000			—
IRS notes payable, interest at 5.0%, level quarterly principal and interest payments through June 1, 2011	23,016			27,466
Capital lease obligations (see Note 7)	976			1,153
Other, monthly payments of principal and interest at various interest rates through April 2008 (weighted average interest rate of 5.43% at December 31, 2006)	30			81
Total long-term debt and capital lease obligations	267,522			74,533
Less unamortized discounts on debt:
9% term loan due March 11, 2011	(4,737		)	—
5% notes payable due June 1, 2011	(1,412		)	(2,016		)
	(6,149		)	(2,016		)
Less current maturities	(22,992		)	(13,064		)
	$	238,381		$	59,453

Subordinated Convertible Notes

On June 1, 2005, the Company and RC Aviation entered into an agreement, pursuant to which RC Aviation and its members purchased from the Company Series A Subordinated Convertible Notes due June 1, 2010 (the Series A Notes) and Series B Subordinated Convertible Notes due June 1, 2010 (the Series B Notes and, together with the Series A Notes, the Notes), in the aggregate principal amount of $60.0 million. The Notes provided for interest at a rate of 5% per annum, payable in cash or additional Notes at the option of the Company. The Notes were convertible into the Company’s common stock at an initial conversion price of $4.35 per share, subject to adjustment upon the occurrence of certain dilutive events. The Series A Notes and the Series B Notes were convertible into 8,933,000 shares and 4,860,103 shares, respectively, of the Company’s common stock at any time after the first anniversary of the issuance thereof. The Notes were to become due in five years from the issue date, if not prepaid or

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

converted prior to such date. The Company had the right, and had covenanted to use its best efforts, to redeem the Notes at 105% of the aggregate principal amount, plus all accrued and unpaid interest due and payable thereunder, at any time prior to the first anniversary of issuance. On June 2, 2005, RC Aviation also received a warrant to purchase shares of the Company’s newly designated Series E Preferred Stock of the Company. In July 2005, such warrant was automatically exchanged, upon the occurrence of certain events (including stockholder approval), for a warrant to purchase up to 10% of the fully-diluted shares of the Company’s common stock (6,855,685 shares) at an exercise price of $7.20 per share (the Common Stock Warrant). In connection with the issuance of the Notes and the granting of the Common Stock Warrant, the Company and RC Aviation also entered into a Registration Rights Agreement relating to the registration of shares of Common Stock issuable upon conversion of the Notes and exercise of the Common Stock Warrant.

At issuance, the Notes were convertible into common stock of the Company at a price per share that was lower than the closing share price of the Company’s common stock as of the date, which difference constituted a beneficial conversion feature. In accordance with EITF Consensus 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (EITF 98-5), the intrinsic value of the beneficial conversion feature as of June 1, 2005 of $27.8 million was recorded as and is included in capital in excess of par value in the consolidated balance sheet as of December 31, 2005. The fair value of the Common Stock Warrant of $13.5 million was also recorded to capital in excess of par value. As a result of the amounts ascribed to the beneficial conversion feature and the Common Stock Warrant, the Notes were recorded at a substantial discount, which was amortized using the effective interest rate method to interest expense over the stated lives of the Notes. The initial carrying value of the Notes was $18.7 million and the initial effective interest rate on the Notes was 33.5%.

During the fourth quarter of 2005, the Company repurchased $7.7 million in principal amount of the Notes at their face amount, plus accrued interest, and corresponding portions of the Common Stock Warrant. The Company recognized losses of $4.2 million as a result of these repurchases. These losses are included in losses due to redemption, prepayment, extinguishment and modification of long-term debt and lease agreements in the consolidated statement of operations for the year ended December 31, 2005.

On April 21, 2006, the Company redeemed all of the then outstanding Notes for $55.9 million, inclusive of a $2.6 million prepayment premium and $1.0 million of accrued and unpaid interest to that date. The Company incurred a $28.0 million nonoperating loss on the redemption of the Notes due principally to the accelerated amortization of the remaining discount associated with the Notes when they were initially issued in June 2005. Warrants to acquire approximately 6.0 million shares of the Company’s common stock issued to the former holders of these Notes remain outstanding under their original terms until June 1, 2010.

Term A and B Credit Facilities

On June 2, 2005, Hawaiian, as borrower, entered into a credit agreement with the Company, as guarantor, the lenders named therein and Wells Fargo Foothill, Inc., as agent for the lenders (the Term A Credit Facility). Indebtedness under the Term A Credit Facility is secured by substantially all Hawaiian’s tangible and certain of its intangible assets. Upon inception, the Term A Credit Facility provided Hawaiian with a variable interest rate $50.0 million senior secured credit facility comprised of: (i) a revolving line of credit in the maximum amount of $25.0 million, subject to availability under a borrowing base formula based on certain of Hawaiian’s eligible assets (as defined in the agreement), with $15.0 million sub-limits

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

for letters of credit and $5.0 million in swing loans; and (ii) a three-year $25.0 million term loan. Indebtedness under the Term A Credit Facility bears interest, in the case of base rate loans, at a per annum rate equal to the Wells Fargo Bank N.A. published prime rate plus 150 basis points, and in the case of LIBOR rate loans, at a per annum rate equal to the LIBOR rate plus 400 basis points, subject to certain adjustments as defined in the Term A Credit Facility. However, at no time during the term of the Term A Credit Facility will the interest rate be less than 5.0% per annum.

On June 2, 2005, Hawaiian, as borrower, entered into a credit agreement with the Company, as guarantor, the lenders named therein and Canyon Capital Advisors, LLC, as agent for the lenders (the Term B Credit Facility). The Term B Credit Facility was secured by liens on substantially all of the assets of Hawaiian, subordinate to the prior liens granted to the lenders under the Term A Credit Facility. As of December 31, 2005, the Term B Credit Facility provided Hawaiian with an additional $25.0 million term loan at an interest rate of 10.0% per annum, with interest payable quarterly in arrears.

On March 13, 2006, the Company, as guarantor, and Hawaiian, as borrower, amended the Term A and Term B Credit Facilities to cumulatively increase the facilities by $91.3 million. Proceeds from the additional borrowings were used to redeem the Notes and fund a portion of the purchase price and modification costs of four used Boeing 767-300 aircraft acquired by the Company during the first quarter of 2006. The amendment of the Term A Credit Facility was accounted for as a modification, and the Company expensed $1.4 million of legal and other professional fees paid to third parties in connection with amending that facility. The amendment of the Term B Credit Facility was accounted for as an extinguishment, and the Company incurred a nonoperating loss of $1.7 million in connection with amending that facility. The cumulative $3.1 million of losses related to these transactions was recorded in losses due to redemption, prepayment, extinguishment and modification of long-term debt and lease agreements in the consolidated statement of operations for the year ended December 31, 2006. In connection with the amendment of the Term B Credit Facility, the Company also issued warrants to the Term B Credit Facility lenders and another party to acquire 4,050,000 shares of its common stock (the Term B Warrants).

On July 11, 2006, Hawaiian made a $10.0 million prepayment of the 9.0% non-amortizing term loan outstanding under the amended Term B Credit Facility. This prepayment resulted in a $1.0 million nonoperating loss due principally to the accelerated amortization of a portion of the debt discount associated with the Term B Credit Facility when it was amended in March 2006. Additionally, Term B Warrants to acquire approximately 500,000 shares of the Company’s common stock expired pursuant to their terms on July 11, 2006. The remaining Term B Warrants to acquire approximately 3.55 million shares of the Company’s common stock are exercisable for a period of three years from the date of issuance, have an exercise price of $5.00 per share, and contain a feature whereby the Company can force the exercise of the Term B Warrants at anytime after the closing price of the Company’s common stock is at or above $9.00 per share for 30 consecutive calendar days.

As of December 31, 2006, the Term A Credit Facility consisted of a $55 million, 9.38% variable interest rate amortizing term loan due December 10, 2010 and a $25 million revolving line of credit under which Hawaiian had issued approximately $4.8 million in letters of credit as of December 31, 2006. The Term B Credit Facility consisted of a $62.5 million, 9.0% fixed interest rate non-amortizing term loan due March 11, 2011. The remaining debt discount on the Term B Credit Facility at December 31, 2006 of $4.7 million is being amortized using the effective interest method (at approximately 11.3%) through March 2011. The terms of the Term A and Term B Credit Facilities restrict the Company’s ability to, among other things, incur additional indebtedness, pay dividends or make other payments on investments,

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

consummate asset sales or similar transactions, create liens, merge or consolidate with any other person, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Company’s assets. The terms of the Term A and Term B Credit Facilities also restrict the ability of Hawaiian to make dividends or advances to the Company. The Term A and Term B Credit Facilities include customary covenants for lending transactions of this type, including minimum EBITDA, excess availability and leverage ratio financial covenants. The Company was in compliance with the covenants of these facilities as of December 31, 2006. Parent company only financial information is presented in Note 14.

Other notes payable

In December 2006, Hawaiian, as borrower, entered into three loan agreements to finance the purchase of three Boeing 767-300ER aircraft, previously leased from AWAS. The loans each provided Hawaiian with $42 million, for a total of $126 million. The loans are secured by the three aircraft and related property (engines, records, warranties, etc.), and bear interest at a per annum rate equal to the LIBOR rate plus 337 basis points. Principal and interest payments are due monthly, with a balloon payment equal to 41.4% of the original principal amount of the loan due upon maturity in December 2013.

In May 2005, Hawaiian issued two, 5.00% unsecured notes payable to the Internal Revenue Service (IRS) totaling $29.5 million for the settlement of certain pre-petition and administrative tax claims (see Note 8). The notes were subsequently discounted by approximately $2.4 million after adjustment to their fair values at June 2, 2005. As of December 31, 2006 and 2005, the unamortized carrying values of the notes were approximately $21.6 million and $25.4 million, respectively. As of December 31, 2006 and 2005, the unamortized discounts were $1.4 million and $2.0 million, respectively.

The maturities of long-term debt over the next five years as of December 31, 2006 were as follows (in thousands):

2007	$	22,809
2008	23,743
2009	24,836
2010	40,991
2011	76,849

Interest payments were $12.3 million and $4.7 million in 2006 and 2005, respectively

7.Leases

The Company leases aircraft and other assets under long-term lease arrangements. Other leased assets include real property, airport and terminal facilities, sales offices, maintenance facilities, training centers and general offices. Certain leases include escalation clauses and renewal options. When lease renewals are considered to be reasonably assured, as defined in SFAS No. 13, “Accounting for Leases”, the rental payments that will be due during the renewal periods are included in the determination of rent expense over the life of the lease. Leasehold improvements are amortized over the shorter of the lease term, as defined, or the useful life of the asset. The Company’s leases do not include residual value guarantees.

In December 2006, Hawaiian purchased three of the seven Boeing 767 aircraft previously leased from AWAS, and modified the leases on the remaining four Boeing 767 aircraft. The amended aircraft leases removed a provision of the previous agreements that allowed AWAS to exercise early termination options

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

beginning in 2007, shortened the term of the leases and modified the monthly rent due under the lease agreements. Concurrent with the aircraft transactions, the Company and AWAS also amended the leases for three spare engines. The amended leases include a purchase option in 2007. If the purchase option is not exercised, the leases terminate from 2007 through 2009. Losses due to redemption, prepayment, extinguishment and modification of long-term debt and lease agreements includes a net expense of $2.7 million to write-off lease-related intangible assets and unfavorable lease liabilities related to the terminated and modified leases that had been recorded upon Hawaiian’s emergence from bankruptcy in June 2005. In addition, solely a result of the reductions in the lease terms of the spare engines, the Company expensed $0.9 million of maintenance deposits that the Company had previously determined to be recoverable through future maintenance activities, and began expensing certain maintenance deposits as they become due, as it is no longer probable that those deposits will be recoverable through future maintenance activities prior to the end of the lease.

As of December 31, 2006, the Company had 11 Boeing 767-300ER aircraft and 11 Boeing 717-200 aircraft under operating leases with remaining basic lease terms ranging from approximately three years to 15 years. The Company currently leases four Boeing 767 aircraft from AWAS, four Boeing 767 aircraft from International Lease Finance Corporation, three Boeing 767 aircraft from BCC Equipment Leasing Corporation, an affiliate of Boeing Capital Corporation (BCC), and 11 Boeing 717 aircraft from Wells Fargo Bank Northwest, N.A., as owner trustee for the benefit of BCC as owner participant. Under these lease agreements, Hawaiian is required to pay monthly specified amounts of rent plus maintenance reserves based on utilization of the aircraft. Maintenance reserves are amounts paid by Hawaiian to the aircraft lessor as a deposit for certain future scheduled airframe, engine and landing gear overhaul costs. Maintenance reserves are reimbursable once Hawaiian successfully completes such qualified scheduled airframe, engine and landing gear overhauls. Hawaiian’s aircraft lease agreements also contain provisions routinely included in aircraft lease agreements, including in some cases stipulated loss values and termination values. Stipulated loss values are negotiated amounts that must be paid by Hawaiian to the aircraft lessor upon the occurrence of certain aircraft loss events. Termination values are negotiated amounts that must be paid by Hawaiian to terminate the lease.

As of December 31, 2006, the scheduled future minimum rental payments under capital leases and operating leases with noncancelable basic terms of more than one year were as follows (in thousands):

	Capital			Operating Leases
	Leases			Aircraft(*)			Other
2007		$	271		$	88,405	$	3,782
2008		227			90,315		3,555
2009		120			85,580		3,431
2010		102			64,480		2,923
2011		102			63,387		2,923
Thereafter		535			380,359		14,184
		1,357			$	772,526	$	30,798
Less amounts representing interest (at a weighted average imputed interest rate of 10.3%)		381
Present value of minimum capital lease payments		$	976

(*)Includes rentals due under operating leases for spare aircraft engines and certain aircraft parts, which corresponding expenses are classified as aircraft rent at the accompanying consolidated statements of operations.

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Under the terms of certain of Hawaiian’s lease agreements, Hawaiian is prohibited from (i) applying any of its funds, property or assets to the purchase, repurchase, redemption, defeasance, sinking fund or other retirement of any shares of its capital stock, or of any warrants, options or other rights to purchase or acquire any shares of its capital stock, which are beneficially owned by a restricted person (as defined in the agreements); (ii) making any payment of a claim for the rescission of the purchase or sale of, or for damages arising from the purchase or sale of, any shares of capital stock of the Company, Hawaiian or any direct or indirect subsidiary of the Company, other than a payment of claim arising out of an indemnification obligation to an officer or director of the Company or Hawaiian or any of their subsidiaries, and permitted by such entity’s certificate of incorporation or bylaws as in effect on the date hereof; or (iii) making any payment, loan, contribution or other transfer of funds, property or other assets in excess of $100,000 during any twelve month period to any restricted person, other than payment of reasonable compensation in the ordinary course of business that has been approved by the compensation committee of the board of directors.

Rent expense was $125.1 million and $71.8 million, respectively, during the years ended December 31, 2006 and 2005 (during the period in which the Company consolidated Hawaiian).

8.Income Taxes

The components of the income tax provision (benefit) for the years ended December 31, 2006, 2005 and 2004 were as follows (in thousands):

	2006			2005			2004
Current
Federal	$	(517	)	$	(2,036	)		$	—
State	54			11
	(463		)	(2,025		)		—
Deferred
Federal	$	—		$	20,429			$	—
State	—			4,436				—
	—			24,865				—
Provision for income taxes	$	(463	)	$	22,840			$	—

Cash payments for federal and state income taxes were $17.7 million during the year ended December 31, 2006. There were no payments made for federal and state income taxes for the years ended December 31, 2005 and 2004.

The reconciliation of income tax expense (benefit) computed at the United States federal statutory tax rates to income tax expense (benefit) for the years ended December 31, 2006, 2005 and 2004 is as follows (in thousands):

	2006			2005		2004
Income tax expense (benefit) at the U.S. statutory rate	$	(14,354	)	$	3,665	$	(2,542	)
State income taxes, net of federal income tax	(493		)	1,145		(424		)
Change in deferred tax valuation allowance	3,005			14,075		974
Convertible debt discount amortization	10,472			1,297		—
Bankruptcy reorganization costs	—			538		—
Other	907			2,120		1,992
Provision for income taxes	$	(463	)	$	22,840	$	—

81

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

The tax effects of temporary differences that give rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2006 and 2005 are presented below (in thousands):

	2006			2005
Deferred tax assets:
Accumulated pension and other postretirement benefits	$	50,445		$	78,551
Leases	50,942			64,563
Air traffic liability	26,835			21,419
Net operating loss carryforwards	2,365			2,354
Other	13,835			14,542
Total gross deferred tax assets	144,422			181,429
Less valuation allowance on deferred tax assets	(86,006		)	(116,038		)
Net deferred tax assets	58,416			65,391
Deferred tax liabilities:
Intangible assets	$	(53,858	)	$	(62,425	)
Plant and equipment, principally accelerated depreciation	(4,558		)	(2,966		)
Total deferred tax liabilities	(58,416		)	(65,391		)
Net deferred taxes	$	—		$	—

The Company’s effective tax rates differ from the federal statutory rate of 35% primarily due to changes in the valuation allowance for deferred tax assets, the non-deductibility of certain expenses, and state income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the Company’s deferred tax assets will not be realized. The ultimate realization of the Company’s deferred tax assets is dependent upon its ability to carry back net operating losses (NOLs) to periods in which the Company or Hawaiian had net taxable income, the generation of future taxable income during the periods in which those temporary differences become deductible, or the future utilization of the resulting NOL carryforwards prior to expiration. As of December 31, 2006 and 2005, the Company recognized a full valuation allowance on its net deferred tax assets. As a result, the valuation allowance for deferred tax assets decreased by $30.0 million and increased by $114.0 million and $1.4 million for the years ended December 31, 2006, 2005, and 2004, respectively. The decrease in valuation allowance for the year ended December 31, 2006 impacts the provision (benefit) for income taxes, other comprehensive loss, and goodwill for $3.0 million, $(27.0) million and $(6.0) million, respectively. The increase in valuation allowance for the year ended December 31, 2005 impacts the provision (benefit) for income taxes, other comprehensive loss, and goodwill for $14.1 million, $4.9 million and $(2.4) million, respectively. The increase in the valuation allowance for the year ended December 31, 2004 only impacts the provision (benefit) for income taxes.

As of December 31, 2006, the Company had total NOL carryforwards of approximately $6.3 million available to offset future taxable income. If not used to offset future taxable income, the NOLs will expire between the years 2007 and 2009. Additionally, Hawaiian underwent an ownership change in January 1996, as defined under Section 382 of the Internal Revenue Code (IRC Section 382). IRC Section 382 places an annual limitation on the amount of taxable income that can be offset by net operating loss carryforwards generated in pre-ownership change years. The ownership change resulted in an annual IRC Section 382 limitation of approximately $1.7 million plus certain “built-in” income items. This limitation applies to all net operating losses incurred prior to the ownership change. During the year ended December 31, 2006,

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

the Company utilized $0.5 million of the net operating loss carryforwards resulting in an income tax benefit of $0.2 million, which was credited to goodwill. Future utilization of the net operating loss carryforwards may result in a reduction in goodwill.

During 2003, the IRS commenced an audit of Hawaiian’s 2001 and 2002 tax years, covering taxes for income, fuel excise, and other matters. On February 1, 2005, the Bankruptcy Court ruled that the IRS’s claim for unpaid fuel excise tax and interest of $21.8 million was a valid claim. Other issues under audit were settled with the IRS resulting in a net liability of approximately $7.7 million. As a result of the agreed settlements with the IRS and the Bankruptcy Court’s ruling with respect to the excise tax claim, in May 2005, Hawaiian issued two, 5% notes payable to the IRS totaling approximately $29.5 million, the unamortized balance of those notes being approximately $23.0 million as of December 31, 2006. The notes mature on June 1, 2011.

In October 2006, the IRS issued a Revenue Agent’s Report summarizing the income tax examination changes for tax year 2003. Most issues related to the examination of Hawaiian’s 2003 federal income tax return have been resolved and agreed upon. Examination issues for 2003 that have not been resolved and agreed upon have proceeded to the Appeals Office of the IRS. The $1.0 million benefit resulting from the agreed issues related to the 2003 IRS examination was recorded as a credit to goodwill during the year ended December 31, 2006.

The State of Hawaii Department of Taxation is currently in the process of examining Hawaiian’s general excise tax returns for 2001 through 2005, as well as the tax credit for research activities claimed on the 2001 income tax return and the Hawaii capital goods excise tax credit claimed on the 2001 through 2004 income tax returns. The Company cannot currently determine the impact of any potential assessments resulting from these examinations on its future financial position, results of operations and liquidity. Any additional taxes paid by the Company related to any periods prior to the effective date of Hawaiian’s plan of reorganization will result in a corresponding increase in goodwill; conversely, a reduction in the Company’s income tax liability related to any periods prior to the effective date will result in a decrease in goodwill.

9.   Benefit Plans

Hawaiian sponsors three defined benefit pension plans covering the Air Line Pilots Association, International Association of Machinists and Aerospace Workers (AFL-CIO) (IAM) and other personnel (salaried, Transport Workers Union, Network Engineering Group). The plans for the IAM and other employees were frozen effective October 1, 1993. The new collective bargaining agreement that Hawaiian’s pilots ratified in January 2007 provides that benefit accruals for pilots under age 50 as of July 1, 2005 will be frozen effective January 1, 2008, and that Hawaiian will begin to make contributions to an alternate defined contribution retirement program for pilots. All of the pilots’ existing accrued benefits under their defined benefit plan at the date of the freeze will be preserved, but there will be no further benefit accruals after the date of the freeze (with the exception of certain pilots who were both age 50 and older and participants of the plan on July 1, 2005). The pilots’ plan is funded based on minimum Employee Retirement Income Security Act of 1974 (ERISA) requirements, but not less than the normal cost plus the 20-year funding of the past service liability. Funding for the ground personnel plans is based on minimum ERISA requirements.

In addition to providing pension benefits, Hawaiian sponsors two unfunded defined benefit postretirement medical and life insurance plans. Employees in Hawaiian’s pilot group are eligible for

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Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

certain medical, dental and life insurance benefits under one plan if they become disabled or reach normal retirement age while working for Hawaiian. Employees in Hawaiian’s non-pilot group are eligible for certain medical benefits under another plan if they meet specified age and service requirements at the time of retirement.

The Company recorded the obligations under Hawaiian’s defined pension and other post-retirement benefit plans at their fair value as of June 2, 2005, based on the assumptions set forth below. The following table summarizes the accumulated benefit obligation, the projected benefit obligation and plan assets as of June 2, 2005 (in thousands).

	Pension			Other
	Benefits			Benefits
Accumulated benefit obligation	$	338,188		$	55,950
Projected benefit obligation	347,139			55,950
Fair value of plan assets	(202,105		)	—
Accrued benefit obligation	$	145,034		$	55,950

Discount rate	5.0	%
Expected return on plan assets	7.9	%
Rate of compensation increase (pilots only)	1.0	%

On September 29, 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans (an Amendment of FASB Statements No. 87, 88, 106 and 132R)” (SFAS 158). SFAS 158 requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Also, under SFAS 158, gains and losses and prior service costs and credits under Statements No. 87 and No. 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of income tax effects, until they are recognized as a component of net periodic benefit expense. SFAS 158 does not change the amount of net periodic benefit expense recognized in the results of operations. The adoption of SFAS 158 at December 31, 2006 resulted in a decrease to accumulated pension and other postretirement benefit obligations and an increase to shareholders’ equity (deficiency) of approximately $56.7 million.

84

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

The following tables summarize changes to projected benefit obligations, plan assets, funded status and applicable amounts included in the accompanying balance sheets as of December 31, 2006 and 2005 (in thousands):

	2006						2005
	Pension			Other			Pension			Other
Change in benefit obligation
Benefit obligation, beginning of period(a)	$	330,860		$	56,717		$	347,139		$	55,950
Service cost	7,400			2,310			3,283			1,781
Interest cost	17,886			2,976			9,996			1,619
Actuarial gains and losses	(2,468		)	(5,711		)	—			—
Assumption changes	—			—			(21,014		)	(1,781		)
Benefits paid	(14,945		)	(1,349		)	(8,544		)	(852		)
less: federal subsidy on benefits paid	N/A			27			N/A			N/A
Actuarial valuation adjustment(b)	(11,297		)	—			—			—
Benefit obligation at end of year(c)	$	327,436		$	54,970		$	330,860		$	56,717
Change in plan assets
Fair value of assets, beginning of period(a)	$	219,897		$	—		$	202,105		$	—
Actual return on plan assets	37,537			—			15,699			—
Employer contribution	10,940			1,349			10,637			852
Benefits paid	(14,945		)	(1,349		)	(8,544		)	(852		)
Fair value of assets at end of year	$	253,429		$	—		$	219,897		$	—
Funded status
Fair value of plan assets	$	253,429		$	—		$	219,897		$	—
Benefit obligations	327,436			54,970			330,860			56,717
Funded status—underfunded	(74,007		)	(54,970		)	(110,963		)	(56,717		)
Unrecognized actuarial gain	N/A			N/A			(27,372		)	(1,780		)
Amount recognized, end of year	$	(74,007	)	$	(54,970	)	$	(138,335	)	$	(58,497	)
Amounts recognized in the statement of financial position consist of:
Current benefit liability	$	(12	)	$	(1,686	)	N/A			N/A
Noncurrent benefit liability	(73,995		)	(53,284		)	N/A			N/A
Accrued benefit cost	N/A			N/A			(138,335		)	(58,497		)
	$	(74,007	)	$	(54,970	)	$	(138,335	)	$	(58,497	)
Weighted average assumption used to determine net periodic benefit expense and projected benefit obligations:
Discount rate to determine net periodic benefit expense	5.50		%	5.50		%	5.00		%	5.00		%
Discount rate to determine projected benefit obligation	5.86		%	5.90		%	5.50		%	5.50		%
Expected return on plan assets	7.90		%	Not applicable			7.90		%	Not applicable
Rate of compensation increase	Various		*	Not applicable			Various		*	Not applicable

(a)For 2005, the beginning of period represents the balance as of June 2, 2005 recorded in purchase accounting.

(b)See discussion of the actuarial valuation adjustment below.

(c)The accumulated pension benefit obligation as of December 31, 2006 and 2005 was $320.4 million and $323.5 million, respectively.

*Differs for each pilot. For pilots age 50 and older at July 1, 2005, amount needed to bring pilot’s final pay to $168,000 in 2005 dollars, indexed 1.0% per year after 2005. For pilots under age 50 at July 1, 2005, compensation was assumed to increase according to negotiated pay increases, and changes in pay grades, aircraft and seat position, until December 31, 2007, indexed at 1% per year. The rate of compensation increase is not applicable to the frozen plans.

85

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Included in accumulated other comprehensive income (loss) at December 31, 2006 are net actuarial gains of $49.4 million related to the Company’s defined benefit pension obligation and $7.4 million related to the Company’s other postretirement benefit obligations, of which $1.5 million and $0.2 million, respectively, are estimated to be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost in 2007.

At December 31, 2005, the health care cost trend rate was assumed to be 9.5% for 2006 and decrease gradually to 5.0% in 2014. At December 31, 2006, the health care cost trend rate was assumed to be 9.0% for 2007 and decrease gradually to 5.0% in 2014. A one-percentage point change in the assumed health care cost trend rates would have the following annual effects (in thousands):

	1-Percentage			1-Percentage
	Point Increase			Point Decrease
Effect on total of service and interest cost components		$	998		$	(801	)
Effect on postretirement benefit obligation		9,118			(7,438		)

Hawaiian develops the expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plan’s assets, including the trustee’s review of asset class return expectations by several consultants and economists, as well as long-term inflation assumptions. Hawaiian’s expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on the goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from security class will not have an unduly detrimental impact on the entire portfolio. The actual asset allocation percentages by category as of December 31, 2006, the target allocation of assets by category, and the expected long-term rate of return by category are as follows:

	Asset Allocation									Expected
	As of December 31									Long-Term
	2006			2005			Target			Rate of Return
U.S. equities		25.6	%		27.5	%		27.5	%		9.6	%
Fixed income		32.9	%		34.4	%		35.0	%		4.7	%
International equities		31.3	%		28.3	%		27.5	%		10.8	%
Other		10.2	%		9.8	%		10.0	%		6.7	%
		100.0	%		100.0	%		100.0	%

86

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

The Company made scheduled contributions of $10.9 million and $23.3 million in 2006 and 2005, respectively. Based on current legislation and current assumptions, the Company anticipates contributing $8.7 million to Hawaiian’s defined benefit pension plans during 2007. The Company projects that Hawaiian’s pension plans and other post retirement benefit plans will make the following benefit payments, which reflect expected future service, for the years ended December 31 (in thousands):

		Other Postretirement Benefits
	Pension Benefits	Gross		Expected Federal Subsidy
2007	16,657		1,719		(34	)
2008	17,985		2,130		(39	)
2009	19,152		2,474		(46	)
2010	20,062		2,803		(52	)
2011	20,972		3,052		(60	)
2012 through 2016	119,630		18,257		(474	)

The following table sets forth the net periodic benefit cost for the years ended December 31, 2006 and, during those periods in which the Company consolidated Hawaiian. The Company did not consolidate Hawaiian in 2004 (in thousands).

	2006						2005(*)
Components of Net Periodic Benefit Cost	Pension			Other			Pension			Other
Service cost	$	7,400		$	2,310		$	3,283		$	1,781
Interest cost	17,886			2,976			9,996			1,619
Expected return on plan assets	(17,176		)	—			(9,342		)	—
Amortization of prior service cost	—			—			—			—
Recognized net actuarial (gain) loss	(2		)	(100		)	—			—
Curtailment and termination benefits	—			—			—			—
Actuarial valuation adjustment(a)	1,141			—			—			—
Net periodic benefit cost	$	9,249		$	5,186		$	3,937		$	3,400

(*)Only represents the period (June 2, 2005 to December 31, 2005) during which Hawaiian was consolidated by the Company.

(a)See discussion of the actuarial valuation adjustment below.

During 2006, the Company determined that its pension obligation as of June 2, 2005, the date of Hawaiian’s emergence from bankruptcy, was overstated by $13.3 million. The impact of this error was to overstate goodwill and the pension obligation as of June 2, 2005 by approximately $13.3 million. In addition, pension expense was understated by $1.1 million for 2005 and $0.8 million of assumption changes were not reflected in the pension obligation balance as of December 31, 2005. Because the impact of the error was not material to the Company’s financial statement for either the current or prior year, the Company has corrected its accounting for the pension obligation during the year ended December 31, 2006.

Hawaiian also sponsors separate defined contribution plans (401(k)) for its pilots, flight attendants and ground and salaried personnel. Participating employer cash contributions are not currently required under the terms of the pilots’ plan, but will be required subsequent to the freeze of the pilots’ defined

87

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

benefit plan. Hawaiian is required to contribute up to 7.0% of defined compensation pursuant to the terms of the flight attendants’ plan. Contributions to the flight attendants’ plan are funded currently and totaled approximately $2.5 million and $1.7 in 2006 and 2005, respectively, during the period Hawaiian was consolidated by the Company. Hawaiian is also required to contribute a minimum of 5.04%, up to a maximum of 9.04%, of eligible earnings to the ground and salaried plan for eligible employees as defined by the plan. Contributions to the ground and salaried 401(k) plan totaled $4.7 million and $2.4 million in 2006 and 2005, respectively, during the period Hawaiian was consolidated by the Company.

10.   Capital Stock, Stock Compensation and Stock Option Plans

Common Stock

On June 14, 2004, RC Aviation purchased ten million shares of the Company’s common stock from AIP,  LLC (AIP), reducing AIP’s ownership of the Company to approximately 14 percent of the Company’s outstanding common stock. Also as part of the purchase, John W. Adams resigned as the Company’s Chairman and Chief Executive Officer and RC Aviation and AIP entered into a stockholders agreement, under which, among other things, AIP agreed to cause the directors that AIP had previously designated to the Board of Directors of the Company to resign (other than Gregory S. Anderson), and Lawrence S. Hershfield and Randall L. Jenson (the RC Designees) to be appointed to the Company’s Board of Directors. AIP also agreed, among other things, to vote all of its common stock and Special Preferred Stock (i) in favor of the election, as members of the Board of Directors of the Company, of persons identified by RC Aviation for nomination or so nominated in accordance with the Company’s Amended and Restated Certificate of Incorporation and the Company’s Amended Bylaws, (ii) to otherwise effect the intent of the stockholders agreement, which is to cause RC Designees to become members of the Board of Directors of the Company, and (iii) to otherwise vote such equity securities at the direction of RC Aviation. On December 30, 2004, the Company and AIP entered into an agreement whereby the four shares of Special Preferred Stock of the Company held by AIP were cancelled and AIP no longer has any beneficial ownership or any other form of right, title or interest in, the shares of Special Preferred Stock.

In July 2004, the Company sold 351,062 unregistered shares of common stock to Donald J. Carty, a director of the Company, for $2.0 million. In December 2004, the Company sold 650,000 unregistered shares of common stock to institutional investors for $3.8 million. The price per share for each transaction represented a 10% discount from the trading price of the Company’s common stock on the date of the sale.

No dividends were paid by the Company during years ended December 31, 2006, 2005, or 2004. Restrictions in the Term A and Term B Credit Facility and certain of the Company’s aircraft lease agreements restrict the Company’s ability to pay dividends.

Special Preferred Stock

The IAM, Association of Flight Attendants (AFA), and ALPA each hold one share of Special Preferred Stock, which entitles each union to nominate one director to the Company’s board of directors. In addition, each series of the Special Preferred Stock, unless otherwise specified: (i) ranks senior to the Company’s common stock and ranks pari passu with each other such series of Special Preferred Stock with respect to liquidation, dissolution and winding up of the Company and will be entitled to receive $0.01 per share before any payments are made, or assets distributed to holders of any stock ranking junior to the Special Preferred Stock; (ii) has no dividend rights unless a dividend is declared and paid on the

88

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Company’s common stock, in which case the Special Preferred Stock would be entitled to receive a dividend in an amount per share equal to two times the dividend per share paid on the common stock; (iii) is entitled to one vote per share of such series and votes with the common stock as a single class on all matters submitted to holders of the Company’s common stock; (iv) automatically converts into the Company’s common stock on a 1:1 basis, at such time as such shares are transferred or such holders are no longer entitled to nominate a representative to the Company’s Board of Directors pursuant to their respective collective bargaining agreements.

Adoption of SFAS 123R

The Company has a stock option plan for its officers and non-employee directors and a stock bonus plan for all of its other employees. Effective January 1, 2006, the Company adopted SFAS 123R to account for grants and awards made under these plans. SFAS 123R superseded Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and replaces SFAS 123, “Accounting for Stock-Based Compensation” (SFAS 123). Prior to its adoption of SFAS 123R, the Company accounted for its stock option and stock bonus plans pursuant to APB 25 and related Interpretations, and the pro forma disclosure provisions of SFAS 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”.

SFAS 123R requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of such awards on the dates they are granted. The fair value of the awards is estimated using option-pricing models for grants of stock options, or the fair value at the measurement date (usually the grant date) for awards of stock. The resultant cost is recognized as compensation expense over the period of time during which an employee is required to provide services to the company (the service period) in exchange for the award, the service period generally being the vesting period of the award.

Under APB 25, no compensation expense was recognized for grants of stock options if on the date the option was granted its exercise price was equal to or more than the fair value of the underlying stock. Although SFAS 123, as amended, encouraged the recognition of expense associated with the fair value of grants of stock options, SFAS 123 allowed for the presentation in the notes to financial statements of pro forma net income (loss) as if a company had accounted for granted employee stock options using the fair value method prescribed by SFAS 123.

Prior to the adoption of SFAS 123R, benefits of tax deductions in excess of recognized stock-compensation expense were reported as operating cash flows. Under SFAS 123R, such excess tax benefits are reported as financing cash flows. Although total cash flow remains unchanged from what would have been reported under prior accounting standards, net operating cash flows are reduced and net financing cash flows are increased due to the adoption of SFAS 123R. For the year ended December 31, 2006, there were excess tax benefits of $0.2 million, which are classified as financing cash flows at the accompanying consolidated condensed statement of cash flows.

89

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Stock Incentive Plan

On July 7, 2005, the Company’s shareholders approved the Company’s 2005 Stock Incentive Plan (the Plan), which superseded the Company’s 1996 Stock Incentive Plan and 1996 Nonemployee Director Stock Option Plan (the Prior Plans), which would have expired under their terms in 2006. The Plan allows for the issuance of eight million shares of common stock, which includes approximately 1.1 million shares to be rolled over from the Company’s Prior Plans and approximately 6.9 million additional shares of common stock. The Plan authorizes the Compensation Committee of the Company’s Board of Directors (the Compensation Committee) to grant to participants: (i) options to purchase common stock, which may be in the form of non-statutory stock options or, if granted to employees, Incentive Stock Options; (ii) stock appreciation rights; (iii) deferred stock units; (iv) restricted common stock with such restriction periods, restrictions or transferability, and performance goals as the Compensation Committee may designate at the time of the grant; (v) cash payments that may be granted separately or as a supplement to any stock-based award; (vi) dividend rights to participants, which entitles a participant to receive the dividends on common stock to which the participant would be entitled if the participant owned the number of shares of common stock represented by the dividend rights; and (vii) other stock-based awards as deemed by the Compensation Committee to be consistent with the purposes of the Plan. The Plan also authorizes the Governance and Nominating Committee of the Company’s Board of Directors to grant and administer director options. The term of each award will be determined by the Compensation Committee at the time each award is granted, provided that the terms of options, stock appreciation rights and dividend rights may not exceed ten years.

Shares granted under the Plan will be made available from unissued common stock or from common stock held in treasury. The Plan imposes the following limitations on awards issued under the Plan: (i) the maximum number of shares of common stock that may be granted as awards to any participant in any fiscal year shall not exceed 1.5 million shares; (ii) the maximum amount of cash or cash payments that may be granted as awards in any fiscal year shall not exceed $100,000; and (iii) the maximum number of dividend rights that may be granted as awards to any participant in any fiscal year shall not exceed dividend rights with respect to 1.5 million shares. The shares of common stock subject to the Plan and each limitation described above are subject to adjustment in the event of certain changes of capitalization. No awards may be granted under the Plan after April 27, 2015. The Plan may be terminated by the Board of Directors at any time, but the termination of the Plan will not adversely affect awards that have previously been granted.

The Company accounts for all stock options granted on and after January 1, 2006 pursuant to SFAS 123R. For stock option awards granted prior to January 1, 2006, but for which the vesting periods were not complete, the Company adopted the modified prospective transition method permitted by SFAS 123R. Under this method the Company accounts for such unvested awards on a prospective basis over their remaining vesting periods as of January 1, 2006, with expense being recognized in the statement of operations using the grant-date fair values previously calculated for the SFAS 123 pro forma disclosures presented below and for other applicable periods ended prior to January 1, 2006.

Options granted under the Plan have exercise prices equal to the fair value of the Company’s common stock at the grant date, generally vest and become fully exercisable over periods ranging from two to four years and have ten-year terms. For grants that are subject to graded vesting over the service period, the Company historically recognized for purposes of the pro forma disclosures permitted by SFAS 123 and will

90

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

continue to recognize expense on a straight-line basis over the requisite service period for the entire award. None of the Company’s grants include performance-based or market-based vesting conditions.

The Company estimates the fair values of its options using the Black-Scholes-Merton option-pricing model. This option-pricing model requires the Company to make several assumptions regarding the key variables used in the model to calculate the fair value of its stock options. The risk-free interest rate used by the Company is based on the U.S. Treasury yield curve in effect for the expected lives of the options at their dates of grant. The Company uses a dividend yield of zero as it never has paid nor intends to pay dividends on its common stock. The expected lives of stock options granted on and subsequent to January 1, 2006 were determined using the “simplified” method prescribed in the SEC’s Staff Accounting Bulletin No. 107. The most critical assumption used in calculating the fair value of stock options is the expected volatility of the entity’s common stock. Due to Hawaiian’s bankruptcy and the thin liquidity of the Company’s common stock during that period, the Company believes that the historic volatility of its common stock is not a reliable indicator of future volatility. Accordingly, the Company has used a stock volatility factor based on the stock volatility factors of a peer comparison group over a period of time approximating the estimated lives of its stock options.

Stock option activity during the year ended December 31, 2006 is summarized in the following table:

	Number of options		Weighted average exercise price			Weighted average remaining contractual life (years)		Aggregate intrinsic value (thousands)
Outstanding at December 31, 2005	2,826,498			$	4.02
Granted during the period	439,886			$	4.20
Exercised during the period	(352,000	)		$	2.70
Cancelled during the period	(18,536	)		$	4.81
Outstanding at December 31, 2006	2,895,848			$	4.20		8.5		$	2,075
Exercisable at December 31, 2006	1,176,008			$	3.70		7.8		$	1,426

For share-based compensation recognized for the year ended December 31, 2006, as a result of the adoption of SFAS 123R, as well as pro forma disclosures according to the original provisions of SFAS 123 for periods prior to the adoption of SFAS 123R, the Company used the Black-Scholes-Merton option-pricing model to estimate the fair value of the stock options granted.  The weighted average estimated fair values of stock option grants and the assumptions that were used in calculating such fair values were based on estimates at the date of grant as follows:

	Year ended December 31,
	2006			2005
Weighted average fair value per share for options granted	$	2.12		$	2.81
Stock options granted during the year	439,886			1,996,498
Assumptions:
Weighted average volatility for options granted	44.48		%	57.91		%
Weighted average risk-free rate for options granted	4.71		%	4.19		%
Weighted average expected life rate for options granted	6.3			6.9
Expected dividend yield	0.00		%	0.00		%

91

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

There were no stock options granted during the year ended December 31, 2004.

The following tables are based on selected ranges of exercise prices for the Company’s outstanding and exercisable stock options as of December 31, 2006.

	Options Outstanding
Range of exercise prices	Number of options	Weighted average exercise price			Weighted average remaining contractual life (years)
$2.10 - $2.90	318,000		$	2.36		5.7
$3.05 - $3.92	584,000		$	3.60		8.5
$4.25 - $5.00	1,993,848		$	4.67		8.7
$2.10 - $5.00	2,895,848		$	4.20		8.5

	Options Exercisable
Range of exercise prices	Number of options	Weighted average exercise price			Weighted average remaining contractual life (years)
$2.10 - $2.90	318,000		$	2.36		5.7
$3.05 - $3.78	370,000		$	3.53		7.9
$4.25 - $5.00	488,008		$	4.70		8.5
$2.10 - $5.00	1,176,008		$	3.70		7.8

The total intrinsic value (the amount by which the fair value of the underlying common stock exceeds the exercise price of a stock option on exercise date) of stock options exercised was $0.4 million, $0.3 million and $1.3 million for the years ended December 31, 2006, 2005 and 2004, respectively.

Stock Bonus Plan

Under the Hawaiian Airlines, Inc. Stock Bonus Plan, which became effective June 2, 2005, Hawaiian’s eligible employees were granted 1.5 million shares of the Company’s common stock. Approximately 275,000 and 608,000 of these shares were distributed to Hawaiian’s employees on February 14, 2006 and May 1, 2006, respectively, and the remaining shares will be distributed on May 1, 2007. The May 2006 distribution was and the May 2007 distribution will be based on each eligible employee’s pro rata share of the applicable cumulative W-2 wages for the tax year preceding the year of each distribution. The Company recognized approximately $2.6 million and $4.0 million of compensation expense for the years ended December 31, 2006 and 2005, respectively, related to the Stock Bonus Plan.

Impact on Earnings due to Adoption of SFAS 123R

Total share-based compensation expense recognized by the Company under SFAS 123R was $5.0 million for the year ended December 31, 2006, which was $2.0 million (or $0.04 per basic and diluted net loss per common stock share) more than what share-based compensation expense would have been under the previous accounting under APB 25 for that period in 2006. As of December 31, 2006, $3.1 million of compensation expense related to unvested stock options (inclusive of $0.3 million for stock options granted to non-employee directors) attributable to future performance had not yet been

92

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

recognized, which related expense will be recognized over a weighted average period of approximately two years. The Company will also recognize approximately $0.9 million of compensation expense during 2007 related to the final distribution in May 2007 of the Company’s common stock granted under its stock bonus plan in June 2005.

The following table illustrates the pro forma effects on net loss for the years ended December 31, 2005 and 2004 as if the Company had accounted for the grants of employee stock options using the fair value method prescribed by SFAS 123. The fair values for the stock options were estimated at the dates the options were granted using the Black-Scholes-Merton option pricing model (in thousands, except per share data).

	Year Ended December 31,
	2005				2004
Net loss—as reported		$	(12,366	)	$	(7,262	)
Add: stock-based employee compensation included in reported net loss, net of tax		2,636			—
Less: stock-based employee compensation expense determined under the fair value method for all grants, net of tax		(3,303		)	(318		)
Pro forma net loss		$	(13,033	)	$	(7,580	)
Basic and diluted loss per share
As reported		$	(0.31	)	$	(0.24	)
Pro forma		$	(0.33	)	$	(0.26	)

11.   Commitments and Contingent Liabilities

Litigation and Contingencies

The Company is subject to various legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of such proceedings will have a material effect upon the Company’s financial statements.

Los Angeles Airport Operating Terminal

In December 1985, Hawaiian entered into an agreement with other airlines (as amended in September 1989) for the sharing of costs, expenses and certain liabilities related to the acquisition, construction and renovation of certain passenger terminal facilities at the Los Angeles International Airport (Facilities). Current tenants and participating members of LAX Two Corporation (the Corporation), a mutual benefit corporation, are jointly and severally obligated to pay their share of debt service payments related to Facilities Sublease Revenue Bonds issued to finance the acquisition, construction and renovation of the Facilities which totaled $111.9 million at completion. The Corporation leases the Facilities from the Regional Airports Improvement Corporation under an agreement accounted for as an operating lease. In addition, the Corporation is also obligated to make annual payments to the city of Los Angeles for charges related to its terminal ground rental.

General Guarantees and Indemnifications

The Company is the lessee under certain real estate leases. It is common in such commercial lease transactions for the lessee to agree to indemnify the lessor and other related third parties for tort liabilities

93

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

that arise out of or relate to lessee’s use or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by their gross negligence or willful misconduct. Additionally, the lessee typically indemnifies such parties for any environmental liability that arises out of or relates to its use of the leased premises. The Company expects that it is covered by insurance (subject to deductibles) for most tort liabilities and related indemnities described above with respect to real estate that it leases. Hawaiian cannot estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.

12.Related Party Transactions

RC Aviation, a principal stockholder of the Company, owned or beneficially owned approximately 36% of the Company’s outstanding shares of common stock as of December 31, 2005. Prior to the effective date of the Joint Plan, RC Aviation purchased the lease claims of BCC and AWAS, and elected to receive cash equal to fifty percent of the claims and common stock equal to fifty percent of the claims. RC Aviation distributed, also prior to the effective date, the lease claims to its members who had funded the purchase price of those claims. In exchange for those claims, on the effective date of the Joint Plan, members of RC Aviation received $87.0 million and 14.1 million shares of the Company’s common stock.

On June 1, 2005, members of RC Aviation, as well as RC Aviation itself and its managing member, RC Aviation Management, LLC, purchased the aggregate $60 million of the Company’s Series A Notes and Series B Notes, pursuant to the Restructuring Support Agreement, dated as of August 26, 2004, under which the Company and RC Aviation agreed to raise the funding necessary to meet the distribution and payment obligations under the Joint Plan and to ensure that Hawaiian would have at least the minimum amount of cash required by the Joint Plan on the effective date of the Joint Plan. RC Aviation Management, LLC is the managing member of RC Aviation and its managing member is Lawrence S. Hershfield, the chairman of the Company’s board of directors. A special committee of the Company’s board of directors approved the terms of the Notes, as well as the Common Stock Warrant described in Note 6, and received fairness opinions in connection therewith. In connection with the issuance of the Notes and the granting of the Common Stock Warrant, the Company and RC Aviation also entered into a Registration Rights Agreement relating to the registration of shares of common stock issuable upon conversion of the Notes and exercise of the Common Stock Warrant.

During the fourth quarter of 2005, the Company repurchased $7.7 million in principal amount of the Notes at their face amount, plus accrued interest, and corresponding portions of the Common Stock Warrant, from members of RC Aviation. The Company recognized losses of $4.2 million as a result of these repurchases. These losses are included in losses due to redemption, prepayment, extinguishment and modification of long-term debt and leases in the consolidated statement of operations for the year ended December 31, 2005. As of December 31, 2005, after giving effect to the warrant repurchases in connection with the Note repurchases, RC Aviation and certain of its members held warrants to purchase approximately 6.0 million shares of common stock.

On April 21, 2006, the Company redeemed all of the then outstanding Notes for $55.9 million, inclusive of a $2.6 million prepayment premium and $1.0 million of accrued and unpaid interest to that date. The Company recognized a nonoperating loss of $28.0 million on the redemption of the Notes due principally to the accelerated amortization of the remaining original issue discount associated with the Notes when they were initially issued in June 2005.

94

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

On May 3, 2006, following the effectiveness of the Company’s registration statement, RC Aviation distributed the Common Stock Warrant. In addition, on May 8, 2006, RC Aviation distributed 6,848,948 shares of common stock to its members from the 10,000,000 shares of common stock acquired from AIP, LLC in June 2004. On June 2, 2006, RC Aviation distributed 1,486,346 shares of common stock to certain of its members. As of December 31, 2006, RC Aviation owns or beneficially owns approximately 6.6% of the Company.

During December 2005, the Company made cash payments and grants of immediately vested stock options to Messrs. Hershfield and Jenson for consulting services provided to the Company during 2004 and 2005 for which they were not previously compensated. Mr. Hershfield was granted options to purchase 100,000 shares of common stock and a cash payment of $100,000; and Mr. Jenson was granted options to purchase 75,000 shares of common stock and a cash payment of $150,000. The Company recognized other operating expense of $0.4 million for these grants during the year ended December 31, 2005, which represented the fair value of the options on the date of grant. Additionally, the Company also authorized the payment of $10,000 per month to Mr. Hershfield, Mr. Jenson and/or their affiliates for continued consulting services to the Company.

During 2004 and 2005, Ranch Capital, LLC, an organization for which Messrs. Hershfield and Jenson serve as chief executive officer and managing director, respectively, paid approximately $69,000 and $52,000 on the Company’s behalf for travel expenses for Messrs. Hershfield and Jenson. As of December 31, 2006, the Company had reimbursed Ranch Capital for all of those travel expenses.

On July 26, 2004, Mr. Donald J. Carty, formerly a member of our board of directors, purchased 351,062 unregistered shares of the Company’s common stock for $2.0 million. The purchase price per share of common stock represented an approximate ten percent discount to the market price of the common stock on the date of the transaction.

Mr. William S. Swelbar, one of our directors, is the former President and Managing Partner of Eclat Consulting, Inc. (Eclat). During 2004, 2005 and 2006, Eclat received consulting fees in the amount $0.2 million, $0.5 million and $0.2 million, respectively, from Hawaiian.

13.Concentration of Business Risk

The scheduled operations of the Company’s sole operating subsidiary, Hawaiian, are primarily focused on providing air transportation of passengers and cargo to, from, and throughout the Hawaiian Islands. Accordingly, Hawaiian’s operations, including its ability to collect its outstanding receivables, are significantly affected by economic conditions in the State of Hawaii and by other factors affecting the level of tourism in Hawaii.

95

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

14.Parent Company Only Financial Information

Following is the condensed financial information of Hawaiian Holdings, Inc., presented on a parent company only basis, as of and for the years ended December 31, 2006 and 2005 (in thousands):

Condensed Statements of Operations
Years ended December 31, 2006 and 2005

	Years ended December 31,
	2006				2005
Operating revenue		$	—		$	—
Opearting expenses		8,864			14,999
Operating loss		(8,864		)	(14,999		)
Nonoperating expense, net		(29,763		)	(8,329		)
Loss before income taxes and undistributed earnings of Hawaiian Airlines, Inc.		(38,627		)	(23,328		)
Income tax benefit		3,032			4,246
Loss before undistributed earnings of Hawaiian Airlines, Inc.		(35,595		)	(19,082		)
Undistributed net income (loss) of Hawaiian Airlines, Inc.		(4,952		)	6,716
Net loss		$	(40,547	)	$	(12,366	)

Condensed Balance Sheets
December 31, 2006 and 2005

	December 31,
	2006		2005
ASSETS
Current Assets:
Cash	$	10,959	$	9,492
Total	10,959		9,492
Investment in Hawaiian Airlines, Inc.	6,144		—
Due from Hawaiian Airlines, Inc	67,355		123,510
Other noncurrent assets	—		1,524
Total assets	$	84,458	$	134,526
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	591	$	818
Other	230		788
Total	821		1,606
Long-term debt	$	—	$	18,123
Losses in excess of investment in Hawaiian Airlines, Inc.	—		66,730
Shareholders’ equity	83,637		48,067
Total liabilities and shareholders’ equity	$	84,458	$	134,526

96

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

Condensed Statements of Cash Flows
Years ended December 31, 2006 and 2005

	Years ended December 31,
	2006				2005
Operating Activities:
Net loss		$	(40,547	)	$	(12,366	)
Adjustments to reconcile net loss to net cash used in operating activities:
Equity in undistributed net income (loss) of subsidiaries		4,952			(6,716		)
Deferred income taxes		—			3,416
Loss on repurchase of subordinated convertible notes		28,032			4,223
Other operating activities, net		424			(1,408		)
Net cash used in operating activities		(7,139		)	(12,851		)
Investing Activities:
Net payments from Hawaiian Airlines		62,435			26,684
Net cash provided by investing activities		62,435			26,684
Financing Activities:
Proceeds from exercises of stock options		951			1,212
Repurchases of subordinated convertible notes and warrants		(54,891		)	(7,722		)
Tax benefit from stock option exercise		191			—
Other		(80		)	—
Net cash used in financing activities		(53,829		)	(6,510		)
Net increase in cash		1,467			7,323
Cash—Beginning of Period		9,492			2,169
Cash—End of period		$	10,959		$	9,492

97

Hawaiian Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)

15.Supplemental Financial Information (unaudited)

Unaudited Quarterly Financial Information (in thousands, except for per share data).

	First  Quarter			Second  Quarter			Third  Quarter		Fourth  Quarter
2006:
Operating revenue	$	212,090		$	224,494		$	231,834	$	219,629
Operating income (loss)	(4,594		)	9,017			12,696		(13,949		)
Nonoperating income (loss)	(7,514		)	(31,087		)	629		(6,208		)
Net income (loss)	(12,292		)	(26,384		)	7,760		(9,631		)
Net income (loss) per common stock share:
Basic	(0.26		)	(0.56		)	0.16		(0.20		)
Diluted	(0.26		)	(0.56		)	0.16		(0.20		)
2005*:
Operating revenue	$	—		$	70,651		$	226,171	$	211,945
Operating income (loss)	(2,095		)	(3,541		)	17,936		(10,270		)
Nonoperating income (loss)	—			4,940			4,791		(1,287		)
Net income (loss)	(2,095		)	1,399			7,833		(19,503		)
Net income (loss) per common stock share:
Basic	(0.07		)	0.03			0.17		(0.43		)
Diluted	(0.07		)	0.03			0.16		(0.43		)

*Includes the deconsolidated results of operations of Hawaiian Holdings, Inc. through June 1, 2005 and the consolidated results of operations of Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. thereafter.

As discussed in Note 3, during the fourth quarter of 2006, the Company changed its classification of the non-travel portion of frequent flyer mileage sales to recognize these amounts as other operating revenue. Prior to 2006, these amounts were classified as a reduction in other operating expenses. The results of operations for all interim periods have been reclassified to conform to the current year presentation.

As discussed in Notes 6 and 7, the Company incurred nonoperating expenses related to the redemption, prepayment, extinguishment and modification of long-term debt and lease agreements of $4.2 million in the fourth quarter of 2005, $3.1 million in the first quarter of 2006, $28.0 million in the second quarter of 2006, $1.0 million in the third quarter of 2006 and $2.7 million in the fourth quarter of 2006.

As discussed in Note 10, during the fourth quarter of 2006, the Company determined that its pension obligation as of June 2, 2005, the date of Hawaiian’s emergence from bankruptcy, was overstated and that pension expense in subsequent periods was understated. As a result, the Company recorded $3.1 million of additional pension expense during the fourth quarter, of which $1.1 million relates to 2005 and $2.0 million relates to the first three quarters of 2006, to correct the prior accounting for the pension obligation. The impact of the error was not material to any prior annual or interim period.

98

REPORT OF INDEPENDENT AUDITORS

Hawaiian Airlines, Inc.

We have audited the accompanying balance sheets of Hawaiian Airlines, Inc. (Hawaiian) as of June 1, 2005, and the related statements of operations, shareholders’ deficiency and comprehensive loss, and cash flows for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004. These financial statements are the responsibility of Hawaiian’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of Hawaiian’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Hawaiian’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hawaiian as of June 1, 2005, and the results of its operations and its cash flows for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States.

/s/ ERNST & YOUNG LLP

March 17, 2006

Honolulu, Hawaii

99

Hawaiian Airlines, Inc. (Debtor)
Statements of Operations

	Period January 1, 2005 through June 1, 2005				Year ended December 31, 2004
	(in thousands)
Operating Revenue:
Passenger		$	289,840			$	699,497
Charter		5,914				7,280
Cargo		11,770				30,579
Other		13,626				26,609
Total		321,150				763,965
Operating Expenses:
Wages and benefits		92,782				227,332
Aircraft fuel, including taxes and oil		69,786				135,946
Aircraft rent		43,868				106,090
Maintenance materials and repairs		24,015				49,246
Other rentals and landing fees		9,637				23,984
Depreciation and amortization		3,768				8,122
Sales commissions		2,578				5,529
Other		62,646				136,633
Total		309,080				692,882
Operating Income		12,070				71,083
Nonoperating Income (Expense):
Reorganization items, net		887				(129,520		)
Interest expense		(465		)		(1,030		)
Other, net		3,374				843
Total		3,796				(129,707		)
Income (Loss) Before Income Taxes		15,866				(58,624		)
Income Tax Expense		18,572				16,816
Net Loss		$	(2,706	)		$	(75,440	)

See accompanying Notes to Financial Statements.

100

Hawaiian Airlines, Inc. (Debtor)
Balance Sheet

	June 1, 2005
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents		$	118,176
Restricted cash		57,448
Accounts receivable, net of allowance for doubtful accounts of $1,219		35,636
Spare parts and supplies, net		10,911
Prepaid expenses and other		30,854
Total		253,025
Property and Equipment, net
Flight equipment		32,430
Other property and equipment		71,008
		103,438
Accumulated depreciation and amortization		(43,594		)
Total		59,844
Other Assets:
Long-term prepayments and other		32,625
Reorganization value in excess of amounts allocable to identifiable assets, net		27,486
Total Assets		$	372,980
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable		$	42,612
Air traffic liability		166,464
Other accrued liabilities		37,408
Current portions of long-term debt and capital leases		4,306
Total		250,790
Long-Term Debt and Capital Lease Obligations		25,295
Other Liabilities and Deferred Credits:
Accumulated pensions and other postretirement benefit obligations		171,868
Other liabilities and deferred credits		37,305
Total		209,173
Liabilities Subject to Compromise		209,461
Commitments and Contingent Liabilities
Shareholders’ Equity Deficiency:
Preferred stock, no shares outstanding		—
Common stock, 27,814,143 shares outstanding		278
Capital in excess of par value		60,084
Notes receivable from sales of common stock		(49		)
Accumulated deficit		(233,924		)
Accumulated other comprehensive income (loss):
Minimum pension liability		(151,872		)
Derivative financial instruments		3,744
Total		(321,739		)
Total Liabilities and Shareholders’ Deficiency		$	372,980

See accompanying Notes to Financial Statements.

101

Hawaiian Airlines, Inc. (Debtor)
Statements of Shareholders’ Deficiency and Comprehensive Loss

										Notes								Accumulated
							Capital In			Receivable								Other
	Common			Preferred			Excess of			from Common				Accumulated				Comprehensive
	Stock(*)			Stock(**)			Par Value			Stock Sales				Deficit				Loss				Total
	(in thousands, except for share data)
Balance at December 31, 2003		278			—			60,084			(1,560		)		(155,778		)		(112,255		)	(209,231		)
Net loss		—			—			—			—				(75,440		)		—			(75,440		)
Minimum pension liability		—			—			—			—				—				(8,461		)	(8,461		)
Derivative financial instruments		—			—			—			—				—				(1,467		)	(1,467		)
Total comprehensive loss																						(85,368		)
Notes receivable from common stock sales		—			—			—			1,491				—				—			1,491
Balance at December 31, 2004		278			—			60,084			(69		)		(231,218		)		(122,183		)	(293,108		)
Net loss		—			—			—			—				(2,706		)		—			(2,706		)
Minimum pension liability		—			—			—			—				—				(31,156		)	(31,156		)
Derivative financial instruments		—			—			—			—				—				5,211			5,211
Total comprehensive loss																						(28,651		)
Notes receivable from common stock sales		—			—			—			20				—				—			20
Balance at June 1, 2005		$	278		$	—		$	60,084		$	(49	)		$	(233,924	)		$	(148,128	)	$	(321,739	)

(*)Common Stock—$0.01 par value; 60,000,000 shares authorized.

(**)Preferred Stock—$0.01 par value; 2,000,000 shares authorized.

See accompanying Notes to Financial Statements.

102

Hawaiian Airlines, Inc. (Debtor)
Statements of Cash Flows

	Period January 1, 2005 through June 1, 2005				Year Ended December 31, 2004
	(in thousands)
Cash Flows From Operating Activities:
Net loss		$	(2,706	)		$	(75,440	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Reorganization items, net		(887		)		129,520
Depreciation and amortization of property and equipment		3,768				8,122
Deferred income taxes		245				589
Pension and postretirement benefit cost		9,824				21,548
Other operating activities, net		—				1,201
Changes in operating assets and liabilities:
Restricted cash		(9,546		)		4,864
Accounts receivable		(12,315		)		13,581
Spare parts and supplies		(2,384		)		(44		)
Prepaid expenses and other current assets		6,492				(11,839		)
Accounts payable		(4,713		)		(1,769		)
Air traffic liability		36,932				18,609
Accrued liabilities		6,427				(16,478		)
Other assets and liabilities, net		(5,857		)		(38,220		)
Net cash provided by operating activities before reorganization activities		25,280				54,244
Reorganization Activities:
Professional fees paid and other		(6,070		)		(20,709		)
Interest on accumulated cash balances		1,579				2,649
Net cash used in reorganization activities		(4,491		)		(18,060		)
Net cash provided by operating activities		20,789				36,184
Cash Flows From Investing Activities:
Additions to property and equipment		(12,978		)		(13,673		)
Net cash used in investing activities		(12,978		)		(13,673		)
Cash Flows From Financing Activities:
Proceeds on notes receivable from sales of common stock		20				1,491
Repayments of long-term debt and capital lease obligations		(302		)		(1,083		)
Net cash provided by (used in) financing activities		(282		)		408
Net Increase in Cash and Cash Equivalents		7,529				22,919
Cash and Cash Equivalents—Beginning of Period		110,647				87,728
Cash and Cash Equivalents—End of Period		$	118,176			$	110,647

See accompanying Notes to Financial Statements.

103

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements

1.   Business and Organization

Hawaiian Airlines, Inc. (Hawaiian), is a wholly-owned subsidiary of Hawaiian Holdings, Inc. (Holdings), and is engaged primarily in the scheduled air transportation of passengers and cargo amongst the Hawaiian Islands and between the Hawaiian Islands and certain cities in the Western United States, the South Pacific and Australia. Hawaiian was originally incorporated in January 1929 under the laws of the Territory of Hawaii and became a Delaware corporation on June 2, 2005 concurrent with its emergence from bankruptcy protection and merger with and into HHIC, Inc. (HHIC), a wholly-owned subsidiary of Holdings, with HHIC as the surviving entity immediately changing its name to Hawaiian Airlines, Inc.

2.   Chapter 11 Proceedings and Reorganization

On March 21, 2003 (the Petition Date), Hawaiian filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Hawaii. Holdings did not file for relief under Chapter 11 of the Bankruptcy Code. On May 30, 2003, a bankruptcy trustee was selected to serve in connection with the Chapter 11 case and thereafter operated Hawaiian under the jurisdiction of the Bankruptcy Court and applicable provisions of the Bankruptcy Code until June 2, 2005, the effective date of Hawaiian’s joint plan of reorganization and its emergence from bankruptcy.

On March 11, 2005, the Company, together with the bankruptcy trustee, the unsecured creditors of Hawaiian, HHIC, and RC Aviation (which was then the largest stockholder), sponsored the Third Amended Joint Plan of Reorganization (the Joint Plan) to provide for Hawaiian’s emergence from bankruptcy. The Joint Plan provided for payment in full of all allowed claims, including unsecured claims and provided for the merger of Hawaiian and HHIC as discussed in Note 1.

104

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

The following table briefly summarizes the classification and treatment of claims under the Joint Plan (in millions):

Class	Classification	Treatment under the Joint Plan	Cash		Non Current Obligations			Common Stock of Holdings
Unclassified	Unsecured Priority Tax Claims	In cash, paid in twenty-four (24) equal quarterly installments.	$	1.2		$	29.5		$	—
Class 1 (Unimpaired)	Secured Priority Tax Claims	In cash, paid in accordance with the legal, equitable and contractual rights of the holder of the claim.	0.9			—			—
Class 2 (Unimpaired)	Other Secured Claims	Generally, at the election of Hawaiian, (i) cash, (ii) surrender of the collateral securing the claim, (iii) cure and reinstatement, or (iv) retention by the holder of the claim of its legal, equitable and contractual rights.	1.3			1.2			—
Class 3 (Unimpaired)	Other Priority Claims	Cash	0.1			—			—
Class 4 (Impaired)	Unsecured Claims not included in a category below	Cash equal to 100% of the allowed claim.	31.7			—			—
Class 5 (Impaired)	Lease Related Claims	A combination of cash, common stock of Holdings based on a stock value of $6.16 per share, and subordinated convertible notes of Holdings.	27.0			60.0			87.0
Class 6 (Impaired)	Convenience Claims	Cash	0.8			—			—
Class 7 (Impaired/ Unimpaired)	Equity Interests	Holders of equity interests in Hawaiian shall retain their interests in the reorganized Hawaiian, without modification or alteration by the Joint Plan. However, Holdings was required to issue new common stock to creditors of Hawaiian, which resulted in a dilution of the ownership interest of Holdings’ common shareholders.
		Total	$	63.0		$	90.7		$	87.0

The Joint Plan was financed through the issuance of approximately 14.1 million shares of Holdings’ common stock to the holders of aircraft lease related claims, a private placement by Holdings of

105

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

$60.0 million in subordinated convertible notes, and the Senior Credit Facility and Term B Credit Facility of Hawaiian described in Note 6.

3.   Summary of Significant Accounting Policies

Basis of Presentation

Hawaiian is a predecessor of Holdings, as defined in Rule 405 of Regulation C of the U.S. Securities and Exchange Commission (SEC). As a result, financial information of Hawaiian, prepared in accordance with Regulation S-X of the SEC, up until the point at which Hawaiian was reconsolidated by Holdings, is included in the accompanying financial statements and in the Annual Report on Form 10-K of Holdings for the year ended December 31, 2006. The accompanying financial statements, prepared as of and through June 1, 2005, do not give effect to any adjustments to the carrying value of assets or the amounts of liabilities of Hawaiian resulting from and occurring subsequent to the consummation of Hawaiian’s plan of reorganization on June 2, 2005.

The accompanying financial statements are prepared in accordance with American Institute of Certified Public Accountants’ Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (SOP 90-7), and on a going-concern basis, which assumes continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business. SOP 90-7 requires that the financial statements for periods subsequent to a Chapter 11 filing separate transactions and events that are directly associated with the reorganization from the ongoing operations of the business. Accordingly, all transactions (including, but not limited to, professional fees, realized gains and losses, and provisions for losses) directly associated with Hawaiian’s reorganization and restructuring are reported separately as reorganization items in the statements of operations. The statements of financial position distinguish pre-petition liabilities subject to compromise both from those pre-petition liabilities that are not subject to compromise and from post-petition liabilities. Liabilities subject to compromise are reported at amounts expected to be allowed by the Bankruptcy Court, even if they may be settled for lesser amounts.

Cash and Cash Equivalents

Hawaiian considers all investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consists primarily of collateral to support credit card holdbacks for advance ticket sales (which funds are subsequently made available to Hawaiian as air travel is provided), and as cash collateral for outstanding letters of credit.

Spare Parts and Supplies

Spare parts and supplies consist primarily of expendable parts for flight equipment and supplies that are stated at average cost and are expensed when consumed in operations. An allowance for obsolescence is provided over the estimated useful life of the related aircraft, plus allowances for spare parts currently identified as excess to reduce the carrying costs to the lower of amortized cost or net realizable value. These allowances are based on management estimates and are subject to change.

106

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

Property and Equipment

Owned property and equipment are stated at cost and depreciated on a straight-line basis over the following estimated useful lives:

Flight equipment	2-15 years, 15% residual value
Ground equipment	5-15 years, no residual value
Buildings	15-20 years, no residual value
Leasehold improvements	Shorter of lease term or useful life

Routine maintenance and repairs are charged to operations as incurred, except that maintenance and repairs under power by the hour maintenance agreements are accrued and expensed on the basis of hours flown. Scheduled airframe inspections and overhauls are capitalized and amortized over the lesser of seven years (generally the time until the next such scheduled event) or the remaining lease term of the aircraft. Modifications that significantly enhance the operating performance or extend the useful lives of owned and leased property and equipment are capitalized and amortized over the lesser of the estimated useful life of the modification or the lease term.

Reorganization Value in Excess of Amounts Allocable to Identifiable Assets

Hawaiian emerged from a previous Chapter 11 bankruptcy on September 12, 1994. Under fresh start reporting, the reorganization value of the entity was allocated to Hawaiian’s assets and liabilities on a basis substantially consistent with the purchase method of accounting. The portion of reorganization value not attributable to specific tangible or identifiable intangible assets of Hawaiian is reflected as reorganization value in excess of amounts allocable to identifiable assets (excess reorganization value) in the accompanying balance sheets. Excess reorganization value is not amortized but is instead subject to annual impairment tests. During the period January 1 through June 1, 2005 and the year ended December 31, 2004, excess reorganization value was reduced by $0.2 million and $0.6 million, respectively, representing the current year tax benefit of the utilization of net operating loss carryforwards arising prior to the previous Chapter 11 bankruptcy.

Revenue Recognition

Passenger revenue is recognized either when the transportation is provided or when tickets expire unused. The value of passenger tickets for future travel is included as air traffic liability. Hawaiian performs periodic evaluations of this estimated liability and any resulting adjustments, which can be significant, are included in the results of operations for the periods in which the evaluations are completed. Charter and cargo revenue is recognized when the transportation is provided.

Hawaiian sells mileage credits in its HawaiianMiles frequent flyer program to participating partners such as hotels, car rental agencies and credit card companies. Revenue from the sale of mileage credits is deferred and recognized as passenger revenue when transportation is likely to be provided, based on the fair value of the transportation to be provided. Amounts in excess of the fair value of the transportation to be provided are recognized immediately as a reduction in marketing expenses.

Components of other operating revenue include ticket change fees, ground handling fees, sales of jet fuel, and other incidental sales that are recognized as revenue when the related goods and services are provided.

107

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

Frequent Flyer Program

Hawaiian recognizes a liability under its HawaiianMiles frequent flyer program as members accumulate mileage points. Hawaiian records a liability for either the estimated incremental cost of providing travel awards that are expected to be redeemed on Hawaiian, or the contractual rate of expected redemption on partner airlines. Incremental cost includes the cost of fuel, meals, liability insurance, reservations, and ticketing and does not include any costs for aircraft ownership, maintenance, labor or overhead allocation. The liability is adjusted periodically based on awards earned, awards redeemed, changes in the incremental costs and changes in the HawaiianMiles program. A change to the cost estimates, the actual redemption activity, or the amount of redemptions on partner airlines could have a significant impact on the frequent flyer liability in the period of change as well as in future years.

Sales Commissions

Commissions from the sale of passenger revenue are recognized as expense when the transportation is provided and the related revenue is recognized. The amount of sales commissions not yet recognized as expense is included in prepaid expenses and other current assets in the accompanying balance sheets.

Advertising Costs

Hawaiian expenses advertising costs as incurred. Advertising expense was $4.6 million and $7.7 million for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004, respectively.

Notes Receivable from Sale of Stock

In September 1996, $1.9 million in full recourse, interest-bearing notes were received from option holders who exercised options to purchase 592,500 shares of Hawaiian’s common stock. The notes are classified as a reduction in shareholders’ deficiency. During the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004, $20,000 and $1.5 million, respectively, of the notes were repaid.

Stock Option Plans

Hawaiian accounts for stock options issued by Hawaiian and by Holdings related to Hawaiian’s participation in the stock-based compensation plans of Holdings in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25) and related interpretations. Under APB 25, no compensation expense is recognized for stock option grants if at the date of the grant the exercise price of the stock option is at or above the fair market value of the underlying stock.

Hawaiian has adopted the pro forma disclosure features of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. As required by SFAS 123, pro forma information regarding net loss has been determined as if Hawaiian had accounted for employee stock options and awards granted using the fair value method prescribed by SFAS 123. The following table illustrates the pro forma effect on net loss if Hawaiian had accounted for employee stock options and awards granted using the fair value method prescribed by SFAS 123 for the period January 1, 2005 to June 1, 2005, and for the year ended December 31, 2004. The fair values for the stock options were estimated at the dates the options were granted using a Black-Scholes-Merton option pricing model and the following assumptions: expected dividend yield of 0%; expected volatility of 55.0%; risk-free interest rates of between 3.97% to 5.27%; and expected lives of 10 years (in thousands).

108

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

	Period
	January 1, 2005
	through				Year ended
	June 1, 2005				December 31, 2004
Net loss—as reported		$	(2,706	)		$	(75,440	)
Less: Total stock-based employee compensation expense determined under the fair value method for all awards, net of income taxes		53				318
Pro forma net loss		$	(2,759	)		$	(75,758	)

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant changes relate to the determination of asset impairment, air traffic liability, frequent flyer liability and the amounts reported for accumulated pension and other postretirement benefit obligations. Management believes that such estimates have been appropriately established in accordance with accounting principles generally accepted in the United States.

Reclassifications

Certain prior years’ amounts were reclassified to conform to the current period’s presentation.

Segment Information

Substantially all of Hawaiian’s flights either originate or end in Hawaii. The management of the associated operations is based on a system-wide approach due to the interdependence of Hawaiian’s route structure in its various markets. As Hawaiian offers only one service, i.e., air transportation, management has concluded that it has only one segment.

4.   Reorganization Items, net

Reorganization items, net represents amounts incurred as a direct result of Hawaiian’s Chapter 11 filing and are presented separately in the statements of operations. Reorganization items, net for the period January 1, 2005 through June 1, 2005, and for the year ended December 31, 2004 consisted of the following (in thousands):

	Period
	January 1, 2005
	through				Year ended
	June 1, 2005				December 31, 2004
Deficiency claims and related charges (See Note 5)		$	(5,418	)		$	111,189
Professional fees		6,070				20,709
Interest on accumulated cash balances		(1,579		)		(2,649		)
Other		40				271
Total reorganization items, net		$	(887	)		$	129,520

109

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

In 2003, under the terms of the revised lease agreements with AWAS,formerly Ansett Worldwide Aviation Services, Inc. (AWAS), for seven Boeing 767 aircraft, Hawaiian surrendered security deposits totaling $5.8 million and agreed that AWAS’ deficiency claims related to the revised and cancelled leases would be $91.1 million. In 2004, AWAS filed an amended proof of claim for the revised leases of $89.0 million. Additionally, Hawaiian agreed to AWAS’ $18.5 million deficiency claim, net of a surrendered lease security deposit of $0.3 million, for the cancelled delivery of one Boeing 767 aircraft in 2003. As a result of these agreements, Hawaiian recognized reorganization expense of $16.4 million and $96.9 million during the years ended December 31, 2004 and 2003 respectively. The agreed deficiency claims have been classified as liabilities subject to compromise in the accompanying balance sheets.

In 2004, Hawaiian, BCC Equipment Leasing Corporation (BCC), and Holdings entered into an agreement that provided for the assumption and modification of the lease terms for three Boeing 767 and 11 Boeing 717 aircraft. Under the terms of the agreement, and in settlement of all claims with respect to the lease revisions, cancelled delivery of one Boeing 767 aircraft in 2003, and rejection of two Boeing 717 aircraft in late 2003 and early 2004, Hawaiian agreed that the BCC deficiency claim would be $66.5 million and Hawaiian’s monthly rentals on the eleven Boeing 717 aircraft leased from BCC were increased. As a result of this agreement, Hawaiian recognized reorganization expense of $96.6 million during the year ended December 31, 2004, consisting of the agreed-upon claim, the present value of the additional monthly rentals, and the write-off of deferred aircraft rent and financing costs related to the previous lease agreements. The agreed deficiency claim has been classified as liabilities subject to compromise in the accompanying balance sheets.

5.Liabilities Subject to Compromise

Under the U.S. Bankruptcy Code, pre-petition obligations generally can not be enforced, and any actions to collect pre-petition indebtedness are automatically stayed, unless the stay is lifted by the Bankruptcy Court. Hawaiian received approval from the Bankruptcy Court to: (i) pay certain pre-petition and post-petition employee wages, salaries, benefits and other employee obligations; (ii) pay vendors and other providers in the ordinary course for goods and services received from and after the Petition Date; (iii) honor customer service programs, including the HawaiianMiles program and ticketing policies; (iv) honor obligations arising prior to the Petition Date related to Hawaiian’s interline, clearinghouse, code sharing and other similar agreements; and (v) pay certain pre-petition taxes and fees, including transportation excise taxes, payroll taxes and passenger facility charges. Substantially all other pre-petition liabilities not mentioned above, which consisted primarily of lease-related claims and pre-petition accounts payable, were classified as liabilities subject to compromise in the accompanying balance sheet and were settled under the Joint Plan (in thousands).

	June 1, 2005
Debt		$	1,475
Capital leases		1,108
Accounts payable and accrued liabilities		32,872
Deficiency Claims		174,006
Total Liabilities Subject to Compromise		$	209,461

110

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

Included in liabilities subject to compromise is a claim for approximately $6.4 million from American Airlines (American) for unpaid pre-petition aircraft rent and maintenance charges. In January 2006, Hawaiian and American negotiated a settlement of this claim which was approved by the Bankruptcy Court in February 2006. On March 10, 2006, the settlement of this claim became final and irrevocable. The claim has been recorded at the settlement amount as of June 1, 2005. The difference of $4.9 million between the amount initially recorded for this claim and the settlement amount was credited to reorganization items, net, in the statement of operations for the period ended June 1, 2005.

6.Long-Term Debt

Long-term debt at June 1, 2005 consisted primarily of 5.00% unsecured note payables to the Internal Revenue Service related to the settlement of certain pre-petition and administrative tax claims (see Note 9).

At June 1, 2005, the estimated maturities of long-term debt (excluding long-term debt classified as liabilities subject to compromise at June 1, 2005) are as follows (in thousands):

	June 1, 2005
Remainder of 2005		$	2,091
2006		4,463
2007		4,692
2008		4,920
2009		5,169
2010		5,434
Thereafter		2,821
		29,590
Less current portions		4,295
Long-term debt		$	25,295

On June 2, 2005, Hawaiian, as borrower, entered into a credit agreement with the Company, as guarantor, the lenders named therein and Wells Fargo Foothill, Inc., as agent for the senior lenders (the Senior Credit Facility). Indebtedness under the Senior Credit Facility is secured by substantially all of Hawaiian’s assets. The Senior Credit Facility provides Hawaiian with a $50.0 million senior secured credit facility comprised of (i) a revolving line of credit in the maximum amount of $25.0 million, subject to availability under a borrowing base formula based on Hawaiian’s eligible accounts receivable, eligible spare parts, eligible ground equipment and collections, with a $15.0 million sublimit for letters of credit and up to $5.0 million in swing loans, and (ii) a $25.0 million term loan payable with quarterly principal payments of $2.1 million each to June 1, 2008. Indebtedness under the Senior Credit Facility bears interest, in the case of base rate loans, at a per annum rate equal to the base rate (Wells Fargo Bank’s published prime rate) plus the base rate margin (150 basis points), and in the case of LIBOR rate loans, at a per annum rate equal to the LIBOR rate plus the LIBOR rate margin, as defined in the Senior Credit Facility. The interest rate shall at no time be less than 5.0% per annum and is subject to adjustment. The Senior Credit Facility includes customary covenants for lending transactions of this type including minimum EBITDA (earnings before interest, taxes and depreciation and amortization, adjusted for extraordinary non-cash charges and credits), excess availability and leverage ratio financial covenants. The Senior Credit Facility matures on June 2, 2008.

111

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

On June 2, 2005, Hawaiian, as borrower, entered into a credit agreement with the Company, as guarantor, the lenders named therein and Canyon Capital Advisors, LLC, as agent for the junior lenders (the Term B Credit Facility). The Term B Credit Facility provided Hawaiian with an additional $25.0 million term loan at an interest rate of 10% per annum, with interest payable quarterly in arrears. The entire principal amount of the loan may be prepaid, subject to certain prepayment penalties as set forth in the Term B Credit Facility. The Term B Credit Facility includes customary covenants for lending transactions of this type, including minimum EBITDA, excess availability and leverage ratio financial covenants. The Term B Credit Facility is secured by a lien on substantially all of Hawaiian’s assets, subordinate to the prior liens granted to the lenders under the Senior Credit Facility. The Term B Credit Facility matures on June 2, 2008.

7.Leases

Hawaiian leases aircraft and other assets under long-term lease arrangements. Other leased assets include real property, airport and terminal facilities, sales offices, maintenance facilities, training centers and general offices. Certain leases include escalation clauses and renewal options. When lease renewals are considered to be reasonably assured, as defined in SFAS No. 13, “Accounting for Leases”, the rental payments that will be due during the renewal periods are included in the determination of rent expense over the life of the lease. Leasehold improvements are amortized over the shorter of the lease term, as defined, or the useful life of the asset. Hawaiian’s leases do not include residual value guarantees.

Aircraft Leases

At June 1, 2005, Hawaiian leased all of its aircraft under long-term operating leases. The aircraft fleet in service on June 1, 2005 was as follows:

Aircraft Type	June 1, 2005
Boeing 767-300ER		14
Boeing 717-200		11
Total		25

Hawaiian currently leases seven Boeing 767 aircraft from AWMS I, an affiliate of AWAS, four Boeing 767 aircraft from International Lease Finance Corporation (ILFC), three Boeing 767 aircraft from BCC and 11 Boeing 717 aircraft from Wells Fargo Bank Northwest, N.A., as owner trustee for the benefit of BCC as owner participant. Under these lease agreements, Hawaiian is required to pay monthly specified amounts of rent plus maintenance reserves based on utilization of the aircraft. Maintenance reserves are negotiated amounts that are paid by Hawaiian to the aircraft lessor as a deposit for certain future scheduled airframe, engine and landing gear overhaul costs. Maintenance reserves are reimbursable once Hawaiian successfully completes such qualified scheduled airframe, engine and landing gear overhauls. Hawaiian’s aircraft lease agreements also contain provisions routinely included in aircraft lease agreements, including in some cases stipulated loss values and termination values. Stipulated loss values are negotiated amounts that must be paid by Hawaiian to the aircraft lessor upon the occurrence of certain aircraft loss events. Termination values are negotiated amounts that must be paid by Hawaiian to terminate the lease.

112

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

Hawaiian’s leases with AWAS allow AWAS to terminate the leases early, after not less than 180 days prior notice to Hawaiian, beginning on March 21, 2007. AWAS can terminate up to two of the leases between March 21, 2007 and September 20, 2007, up to three of the leases between September 21, 2007 and March 20, 2008, and up to two of the leases between March 21, 2008 and September 20, 2009. After September 20, 2009, AWAS can terminate any or all seven of the leases on not less than 180 days prior notice. If AWAS exercises any or all of its early termination options, Hawaiian is responsible for the rents due under the subject leases until the aircraft are returned to AWAS (or its designees) and for the aircraft return provisions prescribed in the lease agreements.

Under the terms of certain of Hawaiian’s lease agreements, Hawaiian is prohibited from (i) applying any of its funds, property or assets to the purchase, repurchase, redemption, defeasance, sinking fund or other retirement of any shares of its capital stock, or of any warrants, options or other rights to purchase or acquire any shares of its capital stock, which are beneficially owned by a restricted person (as defined in the agreements); (ii) making any payment of a claim for the rescission of the purchase or sale of, or for damages arising from the purchase or sale of, any shares of capital stock of Holdings, Hawaiian or any direct or indirect subsidiary of Holdings, other than a payment of claim arising out of an indemnification obligation to an officer or director of Holdings or Hawaiian or any of their subsidiaries, and permitted by such entity’s certificate of incorporation or bylaws as in effect on the date hereof; or (iii) making any payment, loan, contribution or other transfer of funds, property or other assets in excess of $100,000 during any twelve month period to any restricted person, other than payment of reasonable compensation in the ordinary course of business that has been approved by the compensation committee of the board of directors.

Other Leases

Hawaiian leases office space for its headquarters, airport facilities, ticket offices and certain ground equipment under leases with various terms through 2016.

General

Rent expense for aircraft, airport facility and office space and other property and equipment was $49.2 million and $120.3 million for the period January 1, 2005 through June 1, 2005, and the year ended December 31, 2004, respectively.

113

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

The following table sets forth Hawaiian’s scheduled future minimum lease commitments under capital and operating leases as of June 1, 2005. This table reflects the amended terms of Hawaiian’s aircraft leases with BCC, AWAS and ILFC, but it does not include any amounts for the rejected 717 and DC-10 leases or any of the deficiency claims associated with such leases amended or rejected by Hawaiian subsequent to the bankruptcy filing (in thousands).

	Capital		Operating Leases
	Leases		Aircraft		Other
Remainder of 2005	$	248	$	53,018	$	2,431
2006	242		98,588		4,127
2007	137		99,288		3,438
2008	102		104,558		3,268
2009	102		105,803		3,143
2010	102		105,573		2,636
Thereafter	636		822,345		15,425
	1,569		$	1,389,173	$	34,468
Less amounts representing interest	450
Present value of minimum capital lease payments	1,119
Less current portions of capital lease obligations	270
Long-term capital lease obligations	$	849

A portion of Hawaiian’s capital lease obligations are included in liabilities subject to compromise as of June 1, 2005.

The net book value of property held under capital leases as of June 1, 2005 was $2.7 million. Amortization of property acquired under capital leases is included in depreciation and amortization expense in the accompanying statements of operations.

8.Financial Instruments and Risk Management

Financial Instruments

The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, and accounts payable approximate fair value due to the short maturity of those instruments.

The fair value of Liabilities Subject to Compromise approximate the carrying amount due to their short-term maturity and settlement under the Joint Plan providing for payment in full of all allowed claims including unsecured claims upon emergence.

The fair value of the 5% unsecured notes payable to the Internal Revenue Service was approximately $27.1 million as of June 1, 2005 based on the discounted amount of future cash flows the Company’s then current incremental rate of borrowing for similar liabilities.

Fuel Risk Management

Hawaiian has adopted a comprehensive fuel hedging program that provides it with flexibility of utilizing certain derivative financial instruments, such as heating oil forward contracts and jet fuel forward contracts to manage market risks and hedge its financial exposure to fluctuations in its aircraft fuel costs.

114

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

Heating oil forward contracts and/or jet fuel forward contracts are utilized to hedge a portion of our anticipated aircraft fuel needs. Hawaiian does not hold or issue derivative financial instruments for trading purposes. The notional amounts of derivative financial instruments summarized below do not represent amounts exchanged between parties and, therefore, are not a measure of exposure resulting from the use of derivatives. The amounts exchanged are calculated based upon the notional amounts as well as other terms of the instruments.

During 2004, Hawaiian reinstated its fuel hedging program through the use of heating oil forward contracts traded on the New York Mercantile Exchange (NYMEX) for approximately 40% to 45% of its estimated fuel consumption. Hawaiian’s NYMEX heating oil contracts were liquidated in May 2005, and Hawaiian received cash proceeds of $3.8 million. The forward contracts had previously qualified as hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS 133); as a result, the realized gain was deferred by Hawaiian as a component of other comprehensive income as of June 1, 2005.

Hawaiian accounted for the heating oil forward contracts as cash flow hedges. They were recorded at fair value with the offset to accumulated other comprehensive income (loss), net of applicable income taxes and hedge ineffectiveness, and recognized as a component of fuel expense when the underlying fuel being hedged was used. Hawaiian measured fair value of its derivatives based on quoted market prices. The ineffective portion of a change in the fair value of the forward contracts was immediately recognized in earnings as a component of non-operating income (loss). During the period January 1, 2005 through June 1, 2005, and year ended December 31, 2004, Hawaiian recognized $(0.5) million and $0.4 million, respectively in nonoperating income (expense) related to the ineffectiveness of its hedges. For the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004, Hawaiian realized net gains of $2.0 million and $2.1 million, respectively, as a component of aircraft fuel expense on liquidated contracts designated as hedges.

In May 2005, Hawaiian entered into jet fuel forward contracts to hedge approximately 45% of its fuel requirements for the subsequent 12-month period. Jet fuel forward contracts are not exchange traded due to the limited market for such instruments; however, they tend to have a higher level of precision than heating oil forward contracts. Under the terms of the jet fuel forward contracts, Hawaiian is to pay a fixed amount per gallon, at prices ranging from $1.61 to $1.75 per gallon, and receive a floating amount per gallon of jet fuel from the counterparty, based on the market price for jet fuel. The fair value of the jet fuel forward contracts was $4.7 million as of June 1, 2005 and was included in prepaid expenses. The jet fuel forward contracts did not qualify as hedges under SFAS 133 because the Company did not have the required documentation in place for these agreements and instruments, and as a result the increase in the fair value of the jet fuel forward contracts of $4.7 million was recorded as a component of other nonoperating income (expense) for the period ended June 1, 2005.

Hawaiian does not require collateral or other security to support its derivative financial instruments. Therefore, Hawaiian is exposed to credit risk to the extent of the positive fair value of its jet fuel forward contracts in the event the counterparty fails to meet its obligations; however, Hawaiian does not expect the counterparty to fail to meet its obligations.

115

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

9.Income Taxes

The significant components of the income tax provision were (in thousands):

	Period January 1, 2005 through June 1, 2005			2004
Current
Federal		$	14,904	$	12,311
State		3,423		3,916
		18,327		16,227
Deferred
Federal		$	245	$	589
State		—		—
		245		589
Provision for income taxes		$	18,572	$	16,816

Cash payments for federal and state income taxes were $0.4 million and $36.5 million during the period January 1, 2005 through June 1, 2005, and the year ended December 31, 2004, respectively.

Income tax expense for the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004 from the “expected” tax expense (benefit) for that year computed by applying the respective year’s U.S. federal corporate income tax rate to income (loss) before income taxes as follows (in thousands):

	Period January 1, 2005 through June 1, 2005			2004
Computed “expected” tax benefit		$	5,553	$	(20,518	)
State income taxes, net of federal income tax		1,282		(2,931		)
Change in deferred tax valuation allowance		8,571		35,117
Non-deductible reorganization costs		802		4,324
Other		2,364		824
		$	18,572	$	16,816

116

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

The tax effects of temporary differences that give rise to significant portions of Hawaiian’s deferred tax assets and deferred tax liabilities at June 1, 2005 are presented below (in thousands):

	January 1, 2005 through June 1, 2005
Deferred tax assets:
Leases		$	96,577
Accumulated pension and other postretirement benefits		67,280
Air traffic liability		20,097
Net operating loss carryforwards		2,697
Other		6,982
Total gross deferred tax assets		193,633
Less valuation allowance on deferred tax assets		(185,950		)
Net deferred tax assets		7,683
Deferred tax liabilities:
Plant and equipment, principally due to accelerated depreciation		$	(7,683	)
Total deferred tax liabilities		(7,683		)
Net deferred taxes		$	—

Utilization of Hawaiian’s deferred tax assets is predicated on Hawaiian being profitable in future years. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible, or the future utilization of the resulting net operating loss carryforwards prior to expiration. Due to management’s determination that it is more likely than not that Hawaiian’s net deferred tax assets will ultimately not be realized, Hawaiian recognized a full valuation allowance on all net deferred tax assets recorded during the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004. As a result, the valuation allowance for deferred tax assets increased by $18.7 million and $48.6 million during the period January 1, 2005 through June 1, 2005 and the year ended December 31, 2004. These increases include amounts in all periods presented that impact the provision (benefit) for income taxes, other comprehensive loss and excess reorganization value.

Hawaiian underwent an ownership change in January 1996, as defined under Section 382 of the Internal Revenue Code (IRC Section 382). IRC Section 382 places an annual limitation on the amount of income that can be offset by net operating loss carryforwards generated in pre-ownership change years. The ownership change resulted in an annual IRC Section 382 limitation of approximately $1.7 million plus certain “built-in” income items. This new limitation applies to all net operating losses incurred prior to the ownership change. As of June 1, 2005, Hawaiian had total net operating loss carryforwards of approximately $7.7 million to offset future taxable income, all of which were generated prior to Hawaiian’s previous bankruptcy. If not utilized to offset future taxable income, the net operating loss carryforwards will expire between the years 2005 and 2009. During the period ended June 1, 2005, Hawaiian utilized $0.7 million of the net operating loss carryforwards and excess reorganization value was reduced by the resulting $0.2 million benefit.

During 2003, the Internal Revenue Service (the IRS) commenced an audit of Hawaiian, covering taxes for income, fuel excise, and other matters. On June 30, 2004, the IRS filed a proof of claim in the

117

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

amount of $128.9 million. Of that amount, approximately $88.4 million was asserted by the IRS to constitute a priority tax claim under section 507(a)(8) of the Bankruptcy Code. The priority claim consisted of two components: (i) excise taxes on aviation fuel consumed on flights over international waters, which Hawaiian claimed were not subject to the United States fuel excise tax; and (ii) income adjustments for the years 2001 and 2002 related primarily to the deductibility of payments for power-by-the-hour maintenance agreements, tax revenue recognition relative to certain components of the air traffic liability, deductions taken by Hawaiian in 2001 for certain DC-9 aircraft, and tax change in ownership limitations under IRC Section 382 on certain net operating loss carryforwards utilized in 2001. The balance of the claim represented penalties proposed by the IRS arising from the fuel excise tax matter referred to above. The IRS subsequently amended its claim on several occasions.

Hawaiian and the IRS settled the disputes regarding the deductibility of payments for power-by-the-hour maintenance agreements, tax revenue recognition relative to certain components of the air traffic liability, and the deductions taken by Hawaiian in 2001 for the DC-9 aircraft. On February 1, 2005, the Bankruptcy Court ruled that the IRS’s claim for unpaid fuel excise tax and interest of $21.8 million was a valid claim, but that the IRS’s penalty claim for nonpayment of the fuel excise tax was not a valid claim. Additionally, on February 24, 2005, the Bankruptcy Court ruled in favor of Hawaiian with respect to the net operating loss issue. Under the applicable provisions of the Bankruptcy Code, amounts due to the IRS by a debtor in a bankruptcy proceeding are generally payable in up to twenty-four equal quarterly installments. As a result of the agreed settlements with the IRS and the Bankruptcy Court’s ruling with respect to the excise tax claim, in May 2005, Hawaiian issued two, 5% notes payable to the IRS totaling approximately $29.5 million, which are included in long-term debt. Under the terms of these notes, Hawaiian will make quarterly payments of $1.4 million to the IRS through the second quarter of 2011. This obligation is included in long-term debt. After considering the additional deductions available to Hawaiian in its 2003 and 2004 tax returns arising from the income adjustments agreed to with the IRS for the two years under audit, the results of the IRS audit of Hawaiian’s 2001 and 2002 tax returns did not have a material impact on Hawaiian’s financial position, results of operations and liquidity as of December 31, 2004. However, Hawaiian increased its valuation allowance by approximately $7.1 million during the second quarter of 2005 due to a determination, based on developments during that quarter in the on-going IRS audits, that additional book-tax timing differences were likely to generate an increase in net deferred tax assets and a corresponding increase in the valuation allowance.

The IRS is currently in the process of examining Hawaiian’s income tax returns for 2003. The Company cannot currently determine the impact of any potential assessments by the IRS on the Company’s financial position, results of operations and liquidity.

10.Benefit Plans

Hawaiian sponsors three defined benefit pension plans covering ALPA, the International Association of Machinists and Aerospace Workers (AFL-CIO) (IAM) and other personnel (salaried, Transport Workers Union, Network Engineering Group). The plans for the IAM and other employees were frozen effective October 1, 1993. As a result of the freeze, there will be no further benefit accruals. The pilots’ plan is funded based on minimum requirements under the Employee Retirement Income Security Act of 1974 (ERISA), but not less than the normal cost plus the 20-year funding of the past service liability. Funding for the ground personnel plans is based on minimum ERISA requirements. Plan assets consist primarily of common stocks, government and convertible securities, insurance contract deposits, and cash management and mutual funds.

118

Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

In addition to providing pension benefits, Hawaiian sponsors two unfunded defined benefit postretirement medical and life insurance plans. Employees in Hawaiian’s pilot group are eligible for certain medical, dental and life insurance benefits under one plan if they become disabled or reach normal retirement age while working for Hawaiian. Employees in Hawaiian’s non-pilot group are eligible for certain medical benefits under another plan if they meet specified age and service requirements at the time of retirement.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act) was enacted to provide a prescription drug benefit as well as a federal subsidy to sponsors of certain retiree health care benefit plans. FASB Staff Position No. 106-2, which was issued in May 2004 in response to the Medicare Act, requires that the effects of the federal subsidy be considered an actuarial gain and recognized in the same manner as other actuarial gains and losses. Hawaiian’s net periodic postretirement benefit cost for 2004 does not reflect the effects of the Medicare Act. The accumulated postretirement benefit obligation (APBO) for the postretirement benefit plan was remeasured at December 31, 2004, to reflect the effects of the Medicare Act, which resulted in a reduction in the APBO of $2.6 million.

The following tables summarize changes to projected benefit obligations, plan assets, funded status and applicable amounts included in the accompanying balance sheets as of June 1, 2005 (in thousands):

	Pension Benefits				Other Benefits
	June 1, 2005				June 1, 2005
Change in projected benefit obligations
Projected benefit obligation at beginning of year		$	323,661			$	47,458
Service cost		3,390				1,128
Interest cost		7,665				1,216
Assumption changes		19,020				4,538
Curtailment		—				(1,357		)
Actuarial (gain) loss		(644		)		3,581
Benefits paid		(5,953		)		(614		)
Projected benefit obligation at end of year		$	347,139			$	55,950
Change in plan assets
Fair value of assets at beginning of year		$	194,191			$	—
Actual gain on plan assets		1,171				—
Employer contribution		12,696				614
Benefits paid		(5,953		)		(614		)
Fair value of assets at end of year		$	202,105			$	—

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Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

	Pension Benefits				Other Benefits
	June 1, 2005				June 1, 2005
Funded status
Funded status—underfunded		$	(145,034	)	$	(55,950	)
Unrecognized actuarial net loss		160,822			19,119
Unrecognized prior service cost		—			1,047
Net amount recognized		$	15,788		$	(35,784	)
Amounts recognized in the accompanying balance sheets Funded status
Accrued benefit liability		$	(136,084	)	$	(35,784	)
Accumulated other comprehensive loss		151,872			—
Net amount recognized		$	15,788		$	(35,784	)
Weighted average assumptions at end of year
Discount rate		5.00		%	5.00		%
Expected return on plan assets		8.00		%	Not applicable
Rate of compensation increase		Various		*	Not applicable

*Differs for each pilot. For pilots over age 50 as of July 1, 2005, $168,000 at retirement, indexed 1.0% per year from 2005. For pilots under age 50 as of July 1, 2005, compensation was assumed to increase according to negotiated pay increases, and changes in pay grades, aircraft and seat position, until January 1, 2008, indexed at 1% per year. The rate of compensation increase is not applicable to the frozen plans.

At June 1, 2005 and December 31, 2004, the health care cost trend rate was assumed to be 9.50% for 2005, decreasing down each year thereafter, to an ultimate rate of 4.75% in 2014. A one-percentage point change in the assumed health care cost trend rates would have the following effects (in thousands):

	1-Percentage Point Increase			1-Percentage Point Decrease
Effect on total of service and interest cost components		$	417		$	(335	)
Effect on postretirement benefit obligation		9,286			(7,543		)

Assumption changes, for both pension and other benefits, relate primarily to reductions in the discount rate used to value the pension obligations as of June 1, 2005, which resulted in a significant increase in the projected benefit obligation.

The accumulated benefit obligation for Hawaiian’s defined benefit pension plans was $338.2 million as of June 1, 2005. To the extent that the accumulated benefit obligation exceeds the fair value of plan assets, a minimum pension liability must be recognized on the balance sheet. Accordingly, Hawaiian recognized an additional amount (the minimum pension liability adjustment) necessary to record the full amount of the minimum pension liability. Pursuant to SFAS No. 87, “Employers’ Accounting for Pensions”, minimum pension liability adjustments are recognized through accumulated other comprehensive income (loss), rather than through the statement of operations. The minimum pension liability increased shareholders’ deficiency by $151.9 million as of June 1, 2005.

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Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

The following table sets forth the net periodic benefit cost for the period January 1 through June 1, 2005 and the year ended December 31, 2004 (in thousands):

	Pension Benefits							Other Benefits
	January 1 through June 1, 2005				2004			January 1 through June 1, 2005			2004
Components of Net Periodic Benefit Cost
Service cost		$	3,390		$	8,753			$	1,128	$	1,610
Interest costs		7,665			18,235				1,215		2,060
Expected return on plan assets		(6,987		)	(17,267		)		—		—
Amortization of prior service cost		—			—				92		221
Recognized net actuarial loss (gain)		2,836			7,848				485		88
Net periodic benefit cost		$	6,904		$	17,569			$	2,920	$	3,979

Plan assets consist primarily of equity and fixed income securities. As of June 1, 2005, the asset allocation percentages by category were as follows:

	June 1, 2005
U.S. equities		43	%
Fixed income		9	%
International equities		10	%
Other		38	%
		100	%

Hawaiian develops the expected long-term rate of return assumption based on historical experience and by evaluating input from the trustee managing the plan’s assets, including the trustee’s review of asset class return expectations by several consultants and economists as well as long-term inflation assumptions. Hawaiian’s expected long-term rate of return on plan assets is based on a target allocation of assets, which is based on the goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from security class will not have an unduly detrimental impact on the entire portfolio. The target allocation of assets is as follows:

	Percent of Total			Expected Long-Term Rate  of Return
U.S. equities		50	%		10	%
Fixed income		30	%		4	%
International equities		10	%		10	%
Other		10	%		8	%
		100	%

Hawaiian also sponsors separate deferred compensation plans (401(k)) for its pilots, flight attendants, ground and salaried personnel. Participating employer cash contributions are not required under the terms of the pilots’ plan. Hawaiian is required to contribute up to 7.0% of defined compensation pursuant to the terms of the flight attendants’ plan. Contributions to the flight attendants’ plan are funded currently and

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Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

totaled approximately $1.1 million for the period from January 1, 2005 through June 1, 2005 and $2.3 million in 2004. Hawaiian is also required to contribute a minimum of 4.04%, up to a maximum of 8%, of eligible earnings to the ground and salaried plan for eligible employees as defined by the plan. Contributions to the ground and salaried 401(k) plan totaled $1.6 million for the period from January 1, 2005 through June 1, 2005 and $3.5 million in 2004.

11.   Stock Compensation and Stock Options

Stock Compensation

Holdings set aside 1.5 million shares of its common stock in a pool for allocation between the time of Hawaiian’s emergence from bankruptcy and May 2007 among employees of Hawaiian (other than officers) or to their accounts in Hawaiian’s 401(k) or similar deferred compensation plans. The shares will be allocated pursuant to formulas set forth in the agreement.

Stock Option Plans

Under the 1994 Stock Option Plan, 600,000 shares of common stock were reserved for grants of options to officers and key employees of Hawaiian. Under the 1996 Stock Incentive Plan, as amended, 4,500,000 shares of common stock were reserved for issuance of discretionary grants of options to Hawaiian’s employees. Hawaiian also had a 1996 Nonemployee Director Stock Option Plan under which 500,000 shares of common stock were reserved for issuance and grants of options to nonemployee members of the Board of Directors. Stock options are granted with exercise prices equal to the common stock’s fair market values at the grant dates, generally vest over a period of four years and expire, if not previously exercised or cancelled, ten years from the date of grant. Holdings assumed sponsorship of the then-existing Hawaiian stock option plans in 2002. As a result, the outstanding options became exercisable into shares of Holdings common stock upon the same terms and conditions as they were previously exercisable into shares of Hawaiian common stock. Hawaiian had no stock options outstanding during 2005 or 2004.

Other

No dividends were paid by Hawaiian during the period January 1, 2005 through June 1, 2005 or the year ended December 31, 2004.

12.   Commitments and Contingent Liabilities

Litigation and Contingencies

Hawaiian is subject to legal proceedings arising in the normal course of its operations. Management does not anticipate that the disposition of such proceedings will have a material effect upon Hawaiian’s financial statements. Furthermore, Hawaiian’s Chapter 11 filing automatically enjoined, or stayed, the continuation of any judicial or administrative proceedings or other actions against Hawaiian or its property to recover on, collect or secure a claim arising prior to the Petition Date.

Los Angeles Airport Operating Terminal

In December 1985, Hawaiian entered into an agreement with other airlines (as amended in September 1989) for the sharing of costs, expenses and certain liabilities related to the acquisition,

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Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

construction and renovation of certain passenger terminal facilities at the Los Angeles International Airport (Facilities). Current tenants and participating members of LAX Two Corporation (the Corporation), a mutual benefit corporation, are jointly and severally obligated to pay their share of debt service payments related to Facilities Sublease Revenue Bonds issued to finance the acquisition, construction and renovation of the Facilities which totaled $111.9 million at completion. The Corporation leases the Facilities from the Regional Airports Improvement Corporation under an agreement accounted for as an operating lease. In addition, the Corporation is also obligated to make annual payments to the city of Los Angeles for charges related to its terminal ground rental.

General Guarantees and Indemnifications

Hawaiian is the lessee under certain real estate leases. It is common in such commercial lease transactions for Hawaiian as the lessee to agree to indemnify the lessor and other related third parties for tort liabilities that arise out of or relate to Hawaiian’s use or occupancy of the leased premises. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by their gross negligence or willful misconduct. Additionally, Hawaiian typically indemnifies such parties for any environmental liability that arises out of or relates to its use of the leased premises. Hawaiian expects that it is covered by insurance (subject to deductibles) for most tort liabilities and related indemnities described above with respect to real estate that it leases. Hawaiian cannot estimate the potential amount of future payments, if any, under the foregoing indemnities and agreements.

13.   Stock Repurchases, Related Party Transactions and Related Litigation

On May 31, 2002, Hawaiian commenced a tender offer to purchase for cash up to 5,880,000 shares of its common stock at a price of $4.25 per share, representing a potential purchase of approximately 17.5% of Hawaiian’s outstanding common stock as of that date (the Self-Tender). The Self-Tender was substantially oversubscribed and terminated without extension on June 27, 2002. Hawaiian accepted 5,880,000 properly tendered shares on a pro rata basis with a proration factor of approximately 22.12%. Payment for accepted shares of $25.0 million was made on July 8, 2002.

Prior to the appointment of the bankruptcy trustee, Hawaiian paid certain expenses on behalf of Holdings, generally relating to Holdings’ obligations as a public company. In addition, Hawaiian transferred $500,000 to Holdings immediately prior to Hawaiian’s bankruptcy filing. These transactions resulted in an aggregate receivable from Holdings of $1.4 million as of June 1, 2005, which was fully reserved by Hawaiian.

On November 28, 2003, the bankruptcy trustee filed a complaint (the Complaint) with the Bankruptcy Court, naming Mr. Adams, AIP, Airline Investors Partnership, L.P. and Smith Management LLC (collectively, the Adams Defendants) and Holdings, as defendants. The Complaint asserted various counts based on corporate actions including claims alleging, inter alia, fraudulent transfer claims under the Bankruptcy Code and Hawaii law; avoidance and recovery of preference under the Bankruptcy Code; unlawful distribution under Hawaii law; violations of the duties of care and loyalty under Hawaii law; and unjust enrichment under Hawaii law. The factual allegations relate to the Self-Tender; payments made by Hawaiian to Smith Management; $200,000 in compensation paid by Hawaiian to Mr. Adams; and $500,000 transferred from Hawaiian to Holdings immediately prior to Hawaiian’s bankruptcy filing. Based on all of the claims in the Complaint, the Trustee sought in excess of $28 million, as well as punitive damages, prejudgment interest and the costs of the lawsuit. The Adams Defendants and Holdings served answers

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Hawaiian Airlines, Inc. (Debtor)
Notes to Financial Statements (Continued)

denying all material allegations of the Complaint on January 5, 2004 and on February 18, 2004, respectively. On December 17, 2004, Hawaiian and the Adams Defendants entered into a settlement agreement under which the Adams Defendants agreed to pay $3.6 million to Hawaiian in exchange for a release of Hawaiian’s claims. At a hearing held on February 24, 2005, the Bankruptcy Court approved the settlement agreement. The $3.6 million was paid to Hawaiian subsequent to the Effective Date of the Joint Plan.

During 2003, the SEC opened a formal, nonpublic investigation of Hawaiian and several of its then officers, including Mr. Adams, related to the Self-Tender. On March 13, 2004, Hawaiian announced that the staff of the San Francisco District Office of the SEC was considering recommending that the SEC authorize a civil action against Mr. Adams and AIP for possible violations of securities laws related to the Self-Tender. On September 23, 2004, Hawaiian announced a settlement agreement with the SEC that resolves the SEC’s investigation of the Self-Tender, pursuant to which investigation the SEC concluded that the Self-Tender violated SEC rules relating to tender offers. Under the terms of the settlement, the SEC will not file any claim or seek any monetary penalties against Hawaiian, and Hawaiian pledges to comply with tender offer disclosure rules if it should ever again make a public tender offer.

14.   Concentration of Business Risk

Hawaiian’s scheduled service operations are primarily focused on providing air transportation service to, from, and throughout the Hawaiian Islands. Therefore, Hawaiian’s operations, including its ability to collect its outstanding receivables, are significantly affected by economic conditions in the State of Hawaii and by other factors affecting the level of tourism in Hawaii.

15.   Supplemental Financial Information (unaudited)

Unaudited Quarterly Financial Information (in thousands):

2005:	First Quarter		Period April 1, 2005 through June 1, 2005 (Restated)
Operating revenue	$	189,344		$	131,806
Operating income	8,373			3,697
Income before income taxes	869			14,997
Net income (loss)	364			(3,070		)

2004:	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Operating revenue	$	177,831	$	191,178	$	210,819		$	184,137
Operating income	15,741		18,220		32,142			4,980
Income (loss) before income taxes	11,984		14,742		(84,964		)	(386		)
Net income (loss)	7,233		9,181		(95,059		)	3,205

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.CONTROLS AND PROCEDURES.

Management’s Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an evaluation of our disclosure controls and procedures, which have been designed to permit us to effectively identify and timely disclose important financial information. Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective as of December 31, 2006 and provide reasonable assurance that the information required to be disclosed by the Company in reports it files under the Securities and Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

We are responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 was conducted. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on their assessment, we concluded that, as of December 31, 2006, the Company’s internal control over financial reporting was effective based on those criteria.

Our assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited our consolidated financial statements. Ernst & Young LLP’s attestation report on management’s assessment of the Company’s internal control over financial reporting appears below.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the fourth quarter ended December 31, 2006 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Hawaiian Holdings, Inc.

We have audited management’s assessment, included in the section of Item 9A entitled Management’s Report on Internal Control over Financial Reporting, that Hawaiian Holdings, Inc. (the Company) maintained effective internal controls over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, the Company has maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity (deficiency) and comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2006, and our report dated March 15, 2007 expressed an unqualified opinion thereon.

	/s/ ERNST & YOUNG LLP
Honolulu, Hawaii
March 15, 2007

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ITEM 9B.OTHER INFORMATION.

On February 8, 2007, Hoyt H. Zia was appointed Secretary of the Company, effective immediately, and Senior Vice President, General Counsel and Secretary of Hawaiian, effective February 19, 2007.  Until such dates, David Z. Arakawa had served as Secretary of the Company and Senior Vice President, General Counsel and Secretary of Hawaiian.  Mr. Arakawa is expected to terminate his employment with the Company on March 31, 2007.

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS.

The information required by this item is incorporated by reference from our definitive proxy statement, or amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission no later than April 30, 2007.

ITEM 11.EXECUTIVE COMPENSATION.

The information required by this item is incorporated by reference from our definitive proxy statement, or amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission no later than April 30, 2007.

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this item is incorporated by reference from our definitive proxy statement, or amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission no later than April 30, 2007.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by this item is incorporated by reference from our definitive proxy statement, or amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission no later than April 30, 2007.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this item is incorporated by reference from our definitive proxy statement, or amendment to this Annual Report on Form 10-K, to be filed with the Securities and Exchange Commission no later than April 30, 2007.

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)Financial Statements and Financial Statement Schedules:

(1)Financial Statements of Hawaiian Holdings, Inc.

i.Report of Ernst & Young LLP, Independent Registered Public Accounting Firm.

ii.Consolidated Statements of Operations for the Years ended December 31, 2006, 2005 and 2004.

iii.Consolidated Balance Sheets, December 31, 2006 and 2005.

iv.Consolidated Statements of Shareholders’ Equity (Deficiency) and Comprehensive Loss for the Years ended December 31, 2006, 2005 and 2004.

127

v.Consolidated Statements of Cash Flows for the Years ended December 31, 2006, 2005 and 2004.

vi.Notes to Consolidated Financial Statements.

(2)Financial Statements of Hawaiian Airlines, Inc.

i.Report of Ernst & Young LLP, Report of Independent Auditors.

ii.Statements of Operations for the Period January 1, 2005 through June 1, 2005 and the Year ended December 31, 2004.

iii.Balance Sheet, June 1, 2005.

iv.Statements of Shareholders’ Deficiency and Comprehensive Loss for the Period January 1, 2005 through June 1, 2005 and the Year ended December 31, 2004.

v.Statements of Cash Flows for the Period January 1, 2005 through June 1, 2005 and the Year ended December 31, 2004.

vi.Notes to Financial Statements.

(3)Schedule of Valuation and Qualifying Accounts of Hawaiian Holdings, Inc.

(4)Schedule of Valuation and Qualifying Accounts of Hawaiian Airlines, Inc.

The information required by Schedule I, “Condensed Financial Information of Registrant” has been provided in Note 15 to our consolidated financial statements. All other schedules have been omitted because they are not required.

(b)Exhibits:

2.1	Third Amended Joint Plan of Reorganization of Joshua Gotbaum, as Chapter 11 Trustee for Hawaiian Airlines, Inc., the Official Committee of Unsecured Creditors, HHIC, Inc., Hawaiian Holdings, Inc., and RC Aviation, LLC, dated as of March 11, 2005 (filed as Exhibit 2.01 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
2.2	Order Confirming Third Amended Joint Plan of Joshua Gotbaum, as Chapter 11 Trustee for Hawaiian Airlines, The Official Committee of Unsecured Creditors, HHIC, Inc., the Company and RC Aviation, dated as of March 11, 2005, as amended (filed as Exhibit 2.02 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
3.1	Amended and Restated Certificate of Incorporation of Hawaiian Holdings, Inc. (filed as Exhibit 3.1 to the Form S-1, File No. 333-129503, filed by Hawaiian Holdings, Inc. on November 7, 2005).*
3.2	Amended Bylaws of Hawaiian Holdings, Inc. (filed as Exhibit 3.2 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 31, 2005).*

128

10.1	Lease Agreement N475HA, dated February 28, 2001, between Wells Fargo Bank Northwest, N.A. (successor to First Security Bank, N.A.) and Hawaiian Airlines, Inc., for one Boeing 717-200 aircraft (filed as Exhibit 1.2 to the Form 10-Q filed by Hawaiian Airlines, Inc. on May 15, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into a Lease Agreement N476HA, dated March 14, 2001 between Wells Fargo Bank, Northwest, N.A. (successor to First Security Bank, N.A.) and Hawaiian Airlines, Inc., and a Lease Agreement N477HA, dated April 20, 2001, a Lease Agreement N478HA, dated May 24, 2001, a Lease Agreement N479HA, dated June 21, 2001, a Lease Agreement N480HA, a Lease Agreement N481HA, dated July 26, 2001, a Lease Agreement N482HA, dated August 13, 2001, a Lease Agreement N483HA, dated August 27, 2001, a Lease Agreement N484HA, dated September 12, 2001, a Lease Agreement N485HA, dated October 29, 2001, a Lease Agreement N486HA, dated November 20, 2001, and a Lease
	Agreement N487HA, dated December 20, 2001, each between Wells Fargo Bank, Northwest, N.A. (successor to First Security Bank, N.A.) and Hawaiian Airlines, Inc., each for one Boeing 717-200 aircraft, which leases are substantially identical to Lease Agreement N475HA, except with respect to the aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.*
10.2	Amendment No. 1 to Lease Agreement N475HA, dated September 30, 2004, between Wells Fargo Bank Northwest, National Association and Hawaiian Airlines, Inc. (filed as Exhibit 10.1 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. also entered into Amendment No. 1 to Lease Agreement N476HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N477HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N478HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N479HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N480HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N481HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N484HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N485HA, dated September 30, 2004, Amendment No. 1 to Lease Agreement N486HA, dated September 30, 2004, and Amendment No. 1 to Lease Agreement N487HA, dated September 30, 2004, between Wells Fargo Bank Northwest, National Association and Hawaiian Airlines, Inc. The amended leases are substantially identical to Amendment No. 1 to Lease Agreement N475HA, except with respect to the aircraft information, delivery dates and certain other information as to which the Company has been granted confidential treatment. and pursuant to Regulation S-K Item 601, Instruction 2, these amendments were not filed.*

129

10.3	Amendment No. 2 to Lease Agreement N475HA, dated September 30, 2004, between Wells Fargo Bank Northwest, National Association and Hawaiian Airlines, Inc. (filed as Exhibit 10.2 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. also entered into Amendment No. 2 to Lease Agreement N476HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N477HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N478HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N479HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N480HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N481HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N484HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N485HA, dated September 30, 2004, Amendment No. 2 to Lease Agreement N486HA, dated September 30, 2004, and Amendment No. 2 to Lease Agreement N487HA, dated September 30, 2004, between Wells Fargo Bank, Northwest, National Association and Hawaiian Airlines, Inc. The amended leases are substantially identical to Amendment No. 2 to Lease Agreement N475HA, except with respect to the aircraft information and delivery dates. Pursuant to Regulation S-K Item 601, Instruction 2, these amendments were not filed.*
10.4	Lease Agreement, dated as of June 8, 2001, between AWMS I and Hawaiian Airlines, Inc., for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 28140 (filed as Exhibit 1.3 to the Form 10-Q filed by Hawaiian Airlines, Inc. on August 14, 2001 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of June 8, 2001, between AWMS I and Hawaiian
	Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 28141, and a Lease Agreement, dated as of June 8, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 28139, which lease agreements are substantially identical to Lease Agreement 28140, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.*
10.5	Amendment to Lease Agreement, dated as of May 7, 2003, by and between AWMS I and Hawaiian Airlines, Inc., amending that certain Lease Agreement, dated June 8, 2001, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 28140 (filed as Exhibit 10.3 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amended Lease Agreement, dated as of May 7, 2003, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 28139, and Amended Lease Agreement, dated as of May 2003, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 28141, which amended lease agreements are substantially identical to Amended Lease Agreement 28140, except with respect to aircraft information, delivery date and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*

130

10.6	Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33421 (filed as Exhibit 1.5 to the Form 10-Q filed by Hawaiian Airlines, Inc. on November 14, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33422, a Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33423, and a Lease Agreement, dated as of September 20, 2001, between AWMS I and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33424, which lease agreements are substantially identical to Lease Agreement 33421, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed).*
10.7	Amendment No. 1 to Lease Agreement, dated November 6, 2002, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 33421 (filed as Exhibit 10.4 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. has also entered into Amendment No. 1 to Lease Agreement, dated as of November 6, 2002, Manufacturer’s Serial Number 33422, Amendment No. 1 to Lease Agreement, dated as of November 6, 2002, Manufacturer’s Serial Number 33423, and Amendment No. 1 to Lease Agreement, dated as of November 6, 2002, Manufacturer’s Serial Number 33424, which amended lease agreements are substantially identical to Amendment No. 1 to Lease Agreement 33421, except with respect to aircraft information and delivery date, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*
10.8	Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 33421 (filed as Exhibit 10.5 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provision thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, Manufacturer’s Serial Number 33422, Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, Manufacturer’s Serial Number 33423, and Amendment No. 2 to Lease Agreement, dated as of May 7, 2003, Manufacturer’s Serial Number 33424, which amended lease agreements are substantially identical to Amendment No. 2 to Lease Agreement 33421, except with respect to aircraft information, delivery date and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*
10.9	Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, by and between AWMS I and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 33421. Hawaiian Airlines, Inc. has also entered into Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, Manufacturer’s Serial Number 33422, Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, Manufacturer’s Serial Number 33423, and Amendment No. 3 to Lease Agreement, dated as of December 15, 2006, Manufacturer’s Serial Number 33424, which amended lease agreements are substantially identical to Amendment No. 3 to Lease Agreement 33421, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements are not being filed herewith.

131

10.10	Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 24257 (filed as Exhibit 1.4 to the Form 10-Q filed by Hawaiian Airlines, Inc. on November 14, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 24258, a Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 25531, and a Lease Agreement, dated as of July 16, 2001, between International Lease Finance Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 24259, which lease agreements are substantially identical to Lease Agreement 24257, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.*
10.11	Amendment No. 1 to Lease Agreement, dated as of August 2003, between International Lease Finance Corporation and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 24257 (filed as Exhibit 10.6 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amendment No. 1 to Lease Agreement, dated as of August 2003, Manufacturer’s Serial Number 24258, Amendment No. 1 to Lease Agreement, dated as of August 2003, Manufacturer’s Serial Number 25531, and Amendment No. 1 to Lease Agreement, dated as of August 2003, Manufacturer’s Serial Number 24259, which amended lease agreements are substantially identical to Amendment No. 1 to Lease Agreement 24257,
	except with respect to aircraft information, delivery date and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*
10.12	Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33426 (filed as Exhibit 1.6 to the Form 10-Q filed by Hawaiian Airlines, Inc. on November 14, 2001, in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into a Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33427, a Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33428, and a Lease Agreement, dated as of September 20, 2001, between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc. for one Boeing Model 767-33AER aircraft, Manufacturer’s Serial Number 33429, which lease agreements are substantially identical to Lease Agreement 33426, except with respect to aircraft information, delivery date and certain other information as to which Hawaiian Airlines, Inc. has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these lease agreements were not filed.*

132

10.13	Amendment No. 1 to Lease Agreement, dated as of October 24, 2002, by and between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 33466 (originally 33426) (filed as Exhibit 10.7 to the Form 10-Q/A filed by the Company on October 14, 2005). Hawaiian Airlines, Inc. has also entered into Amendment No. 1 to Lease Agreement, dated as of October 24, 2002, Manufacturer’s Serial Number 33427 (originally 33467) and Amendment No. 1 to Lease Agreement, dated as of October 24, 2002, Manufacturer’s Serial Number 33428 (originally 33468), which amended lease agreements are substantially identical to Amendment No. 1 to Lease Agreement 33466 (originally 33426), except with respect to aircraft information and delivery dates, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*
10.14	Amendment No. 2 to Lease Agreement, dated as of September 30, 2004, by and between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 33466 (originally 33426) (filed as Exhibit 10.8 to the Form 10-Q/A filed by the Company on December 22, 2005 in redacted form since confidential treatment has been granted for certain provisions thereof pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended). Hawaiian Airlines, Inc. has also entered into Amendment No. 2 to Lease Agreement, dated as of September 30, 2004, Manufacturer’s Serial Number 33427 (originally 33467) and Amendment No. 2 to Lease Agreement, dated as of September 30, 2004, Manufacturer’s Serial Number 33428 (originally 33468), which amended lease agreements are substantially identical to Amendment No. 2 to Lease Agreement 33466, except with respect to aircraft information, delivery dates and certain other information as to which the Company has been granted confidential treatment, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*
10.15	Amendment No. 3 to Lease Agreement, dated as of September 30, 2004, by and between BCC Equipment Leasing Corporation and Hawaiian Airlines, Inc., Manufacturer’s Serial Number 33466 (originally 33426) (filed as Exhibit 10.9 to the Form 10-Q/A filed by the
	Company on October 14, 2005). Hawaiian Airlines, Inc. has also entered into Amendment No. 3 to Lease Agreement, dated as of September 30, 2004, Manufacturer’s Serial Number 33427 (originally 33467) and Amendment No. 3 to Lease Agreement, dated as of September 30, 2004, Manufacturer’s Serial Number 33428 (originally 33468), which amended lease agreements are substantially identical to Amendment No. 3 to Lease Agreement 33466 (originally 33426), except with respect to aircraft information and delivery date, and pursuant to Regulation S-K Item 601, Instruction 2, these amended lease agreements were not filed.*
10.16	Amended and Restated Stockholders Agreement, dated as of August 29, 2002, by and among Hawaiian Holdings, Inc., AIP, LLC, Air Line Pilots Association, Hawaiian Master Executive Council, Association of Flight Attendants and the International Association of Machinists and Aerospace Workers (filed as Exhibit 10.3 to the Form 10-Q filed by Hawaiian Holdings, Inc. on November 15, 2002).*
10.17	Registration Rights Agreement, dated as of August 29, 2002, between Hawaiian Holdings, Inc. and AIP, LLC (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on August 30, 2002).*
10.18	Hawaiian Holdings, Inc. 2005 Stock Incentive Plan (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on July 14, 2005).*+
10.19	Hawaiian Airlines, Inc. Stock Bonus Plan (filed as Exhibit 4.1 to the Form S-8 filed by Hawaiian Holdings, Inc. on August 19, 2005).*+

133

10.20	Employment Agreement, dated as of August 18, 2005, between the Company and Mark B. Dunkerley (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on August 19, 2005).*+
10.21	Employment Agreement, dated as of March 29, 2005, between Hawaiian Airlines, Inc. and David Z. Arakawa (filed as Exhibit 10.24 to the Form S-1, File No. 333-129503, filed by Hawaiian Holdings, Inc. on November 7, 2005).*+
10.22	Employment Agreement, dated as of November 18, 2005, between Hawaiian Airlines, Inc. and Peter R. Ingram (filed as Exhibit 10.24 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).*+
10.23	Employment Agreement, dated as of April 5, 2005, between Hawaiian Airlines, Inc. and David Osborne+
10.24	Stock Purchase Agreement, dated as of June 11, 2004, by and between AIP, LLC and RC Aviation, LLC (filed as Exhibit 2 to the Schedule 13D filed by RC Aviation, LLC, RC Aviation Management, LLC, and Lawrence S. Hershfield on June 21, 2004).*
10.25	Stockholders Agreement, dated as of June 11, 2004, by and between AIP, LLC and RC Aviation, LLC (filed as Exhibit 3 to the Schedule 13D filed by RC Aviation, LLC, RC Aviation Management, LLC, and Lawrence S. Hershfield on June 21, 2004).*
10.26	Stock Purchase Agreement, dated July 26, 2004, by and between Hawaiian Holdings, Inc. and Donald J. Carty (filed as Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 2004 filed by Hawaiian Holdings, Inc. on March 31, 2005).*
10.27	Restructuring Support Agreement, dated as of August 26, 2004, by and among Joshua Gotbaum as Trustee, Hawaiian Holdings, Inc. and RC Aviation, LLC (filed as Exhibit 10.2 to the Form 10-Q for the quarter ended September 30, 2004 filed by Hawaiian Holdings, Inc. on March 31, 2005).*
10.28	Stock Purchase Agreement, dated December 8, 2004, by and between Hawaiian Holdings, Inc. and the Investors Signatory thereto (filed as Exhibit 10.1 to the Form 8-K/A by Hawaiian Holdings, Inc. on December 10, 2004.)*
10.29	Mutual Release, dated as of December 30, 2004, by and among Hawaiian Holdings, Inc., RC Aviation, LLC, RC Aviation Management, LLC, John Adams, Smith Management LLC, AIP, LLC, and AIP, LLC’s functional predecessor, Airline Investors Partnership, L.P. (filed as Exhibit 10.46 to the Form 10-K for the year ended December 31, 2004 filed by Hawaiian Holdings, Inc. on March 31, 2005).*
10.30	Amended and Restated Stockholders Agreement, dated as of December 30, 2004, by and between AIP, LLC and RC Aviation, LLC (filed as Exhibit 10.1 to the Amendment No. 11 to Schedule 13D filed by AIP, LLC and Jeffrey A. Smith on January 12, 2005).*
10.31	Credit Agreement, dated June 2, 2005, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., the lenders from time to time party thereto, and Wells Fargo Foothill, Inc. (filed as Exhibit 10.08 to the Form 10-Q filed by Hawaiian Holdings, Inc. on August 15, 2005).*
10.32	Amendment No. 1 to Credit Agreement, dated August 19, 2005, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., the lenders from time to time party thereto, and Wells Fargo Foothill, Inc. (filed as Exhibit 10.33 to the Form S-1, File No. 333-129503, filed by Hawaiian Holdings, Inc. on November 7, 2005).*

134

10.33	Amendment No. 2 to Credit Agreement, dated September 8, 2005, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., the lenders from time to time party thereto, and Wells Fargo Foothill, Inc. (filed as Exhibit 10.34 to the Form S-1, File No. 333-129503, filed by Hawaiian Holdings, Inc. on November 7, 2005).*
10.34	Amendment No. 3 to Credit Agreement, dated as of March 13, 2006, by and among the lenders identified on the signature pages thereto, Wells Fargo Foothill, Inc., Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. (filed as Exhibit 10.1 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 17, 2006).*
10.35	Security Agreement, dated June 2, 2005, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc. and Wells Fargo Foothill, Inc. (filed as Exhibit 10.2 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
10.36	Engine and Spare Parts Security Agreement, dated June 2, 2005, by and between Hawaiian Airlines, Inc. and Wells Fargo Foothill, Inc. (filed as Exhibit 10.3 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
10.37	General Continuing Guaranty, dated June 2, 2005, by Hawaiian Holdings, Inc. in favor of Wells Fargo Foothill, Inc. (filed as Exhibit 10.4 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
10.38	Credit Agreement, dated June 2, 2005, by and among Hawaiian Holdings, Inc., Hawaiian Airlines, Inc., the lenders from time to time party thereto, and Canyon Capital Advisors, LLC (filed as Exhibit 10.12 to the Form 10-Q filed by Hawaiian Holdings, Inc. on August 15, 2005).*
10.39	Amendment Number One to Credit Agreement, dated as of March 13, 2006, by and among the lenders identified on the signature pages thereto, Canyon Capital Advisors, LLC, Hawaiian Holdings, Inc. and Hawaiian Airlines, Inc. (filed as Exhibit 10.2 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 17, 2006).*
10.40	Amendment Number Two to Credit Agreement, dated October 10, 2006, by the lenders identified on the signature pages thereof, Canyon Capital Advisors, LLC, a Delaware limited liability company, Hawaiian Holdings, Inc., a Delaware corporation, and Hawaiian Airlines, Inc., a Delaware corporation (filed as Exhibit 10.1 to the Form 10-Q filed by Hawaiian Holdings, Inc., on November 3, 2006).*
10.41	General Continuing Guaranty, dated June 2, 2005, executed and delivered by Hawaiian Holdings, Inc. in favor of Canyon Capital Advisors LLC (filed as Exhibit 10.8 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
10.42	Registration Rights Agreement, dated as of June 1, 2005, by and between Hawaiian Holdings, Inc. and RC Aviation, LLC (filed as Exhibit 10.12 to the Form 8-K filed by Hawaiian Holdings, Inc. on June 7, 2005).*
10.43	Warrant, dated November 17, 2005, granted to RC Aviation, LLC (and subsequently distributed to its members) to purchase the Common Stock of Hawaiian Holdings, Inc. (filed as Exhibit 10.44 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).*
10.44	Aircraft Purchase Agreement, dated as of February 16, 2006, by and among Wilmington Trust Company, not in its individual capacity but solely as owner trustee, Marathon Structured Finance Fund, L.P., and Hawaiian Airlines, Inc., relating to the purchase of three Boeing 767-332 aircraft bearing manufacturer’s serial numbers 23275, 23277 and 23278 and FAA registration numbers N116DL, N118DL, and N119DL (filed as Exhibit 10.45 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).*

135

10.45	Aircraft Purchase and Sale Agreement, dated as of February 24, 2006, by and between Wilmington Trust Company, not in its individual capacity but solely as owner trustee, and Hawaiian Airlines, Inc., relating to the purchase of one Boeing 767-332 aircraft bearing manufacturer’s serial number 23276 and FAA registration number N117DL (filed as Exhibit 10.46 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).*
10.46	Form of Warrant, dated March 13, 2006, to purchase the Common Stock of Hawaiian Holdings, Inc., granted to Term B lenders or their affiliates and immediately exercisable (filed as Exhibit 10.3 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 17, 2006).*
10.47	Registration Rights Agreement, dated as of March 13, 2006, by and among Hawaiian Holdings, Inc. and the Holders party thereto (filed as Exhibit 10.5 to the Form 8-K filed by Hawaiian Holdings, Inc. on March 17, 2006).*
10.48	Purchase Agreement, dated as of December 20, 2006, by and between AWMS I, a Delaware statutory trust, and Hawaiian Airlines, Inc., relating to the purchase of one Boeing 767-300ER aircraft bearing manufacturer’s serial number 28139. Hawaiian Airlines, Inc. also entered into purchase agreements with AWMS I relating to the purchase of two Boeing 767-300ER aircraft bearing manufacturer’s serial numbers 28140 and 28141, which purchase agreements are substantially identical to the purchase agreement related to the aircraft bearing manufacturer’s serial number 28139, except with respect to the aircraft information, and pursuant to Regulation S-K Item 601, Instruction 2, these purchase agreements are not being filed herewith.
10.49	Loan Agreement No. 28139, dated as of December 20, 2006, by and among Hawaiian Airlines, Inc., C.I.T. Leasing Corporation and such other lenders as may from time to time be party thereto. Hawaiian Airlines, Inc. also entered into Loan Agreement No. 28140 and Loan Agreement No. 28141, which loan agreements are substantially identical to Loan Agreement No. 28139, and pursuant to Regulation S-K Item 601, Instruction 2, these loan agreements are not being filed herewith.
10.50	Security Agreement No. 28139, dated as of December 20, 2006, by and between Hawaiian Airlines, Inc. and C.I.T. Leasing Corporation. Hawaiian Airlines, Inc. also entered into Security Agreement 28140 and Security Agreement 28141, which security agreements are substantially identical to Security Agreement 28139, and pursuant to Regulation S-K Item 601, Instruction 2, these security agreements are not being filed herewith.
14.1	Code of Ethics (filed as Exhibit 14.1 to the Form 10-K filed by Hawaiian Holdings, Inc. on March 23, 2006).*
21.1	List of Subsidiaries of Hawaiian Holdings, Inc.
23.1	Consent of Ernst & Young LLP
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

+These exhibits relate to management contracts or compensatory plans or arrangements.

*Previously filed; incorporated herein by reference.

136

Schedule II—Hawaiian Holdings, Inc.
Valuation and Qualifying Accounts (in thousands)
Years Ended December 31, 2006, 2005 and 2004

COLUMN A	COLUMN B		COLUMN C ADDITIONS						COLUMN D			COLUMN E
Description	Balance at Beginning of Year		(1) Charged to Costs and Expenses			(2) Charged to Other Accounts			Deductions			Balance at End of Year
Allowance for Doubtful Accounts
2006	$	912		290			—			(704	)(a)	$	498
2005	$	—		(180	)		1,219	(b)		(127	)(a)	$	912
2004	$	—		—			—			—		$	—
Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies
2006	$	546		1,051	(c)		—			(90	)(d)	$	1,507
2005	$	—		631	(c)		—			(85	)(d)	$	546
2004	$	—		—			—			—		$	—
Valuation Allowance on Deferred Tax Assets
2006	$	116,038		(3,005	)		(27,026	)(e)		—		$	86,007
2005	$	1,990		14,075			102,305	(f)		(2,332	)(g)	$	116,038
2004	$	588		1,402			—			—		$	1,990

(a)    Doubtful accounts written off, net of recoveries.

(b)Represents addition upon reconsolidation of Hawaiian on June 2, 2005.

(c)Obsolescence reserve for Hawaiian flight equipment expendable parts and supplies.

(d)Spare parts and supplies written off against the allowance for obsolescence.

(e)Reversal of valuation allowance on deferred tax assets recorded directly to other comprehensive income (loss).

(f)Reconsolidation of Hawaiian on June 2, 2005 and increase in valuation allowance on deferred tax assets recorded directly to other comprehensive income (loss).

(g)Elimination of the Company’s valuation allowance on deferred tax assets upon reconsolidation of Hawaiian on June 2, 2005 credited to goodwill.

137

Schedule II—Hawaiian Airlines, Inc. (Debtor)
Valuation and Qualifying Accounts (in thousands)
Period from January 1, 2005 through June 1, 2005 and

Year Ended December 31, 2004

COLUMN A	COLUMN B			COLUMN C ADDITIONS						COLUMN D			COLUMN E
Description	Balance at Beginning of Year			(1) Charged to Costs and Expenses			(2) Charged to Other Accounts			Deductions			Balance at End of Year
Allowance for Doubtful Accounts
2005		$	1,337		(180	)		—			62	(a)		$	1,219
2004		$	1,940		30			—			(633	)(a)		$	1,337
Allowance for Obsolescence of Flight Equipment Expendable Parts and Supplies
2005		$	2,516		184			—			(45	)		$	2,655
2004		$	1,523		1,055			—			(62	)		$	2,516
Valuation Allowance on Deferred Tax Assets
2005		$	167,246		8,571			10,378	(b)		(245	)(c)		$	185,950
2004		$	127,995		37,117			2,723	(b)		(589	)(c)		$	167,246

(a)Doubtful accounts written off, net of recoveries.

(b)Relates to changes in the valuation allowance of deferred tax assets recorded directly to other comprehensive income (loss).

(c)Relates to the utilization of net operating loss carryforwards credited to goodwill.

138

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HAWAIIAN HOLDINGS, INC.
March 15, 2007	By	/s/ PETER R. INGRAM
		Peter R. Ingram
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 15, 2007.

	SIGNATURE		TITLE
/s/ MARK B. DUNKERLEY		President and Chief Executive Officer, and Director
Mark B. Dunkerley		(Principal Executive Officer)
/s/ PETER R. INGRAM		Chief Financial Officer and Treasurer
Peter R. Ingram		(Principal Financial and Accounting Officer)
/s/ LAWRENCE S. HERSHFIELD		Chairman of the Board of Directors
Lawrence S. Hershfield
/s/ GREGORY S. ANDERSON		Director
Gregory S. Anderson
/s/ L. TODD BUDGE		Director
L. Todd Budge
/s/ THOMAS B. FARGO		Director
Thomas B. Fargo
/s/ RANDALL L. JENSON		Director
Randall L. Jenson
/s/ SEAN KIM		Director
Sean Kim
/s/ BERT T. KOBAYASHI, JR.		Director
Bert T. Kobayashi, Jr.
/s/ ERIC C.W. NICOLAI		Director
Eric C.W. Nicolai
/s/ CRYSTAL K. ROSE		Director
Crystal K. Rose
/s/ WILLIAM S. SWELBAR		Director
William S. Swelbar

139

EX-10.9

Exhibit 10.9

AMENDMENT NO. 3 TO LEASE AGREEMENT

(33421)

This Amendment No. 3 to Lease Agreement (33421) (“Amendment”), dated as of December 15, 2006, is entered into by and between AWMS I, a Delaware statutory trust, having a place of business at c/o AWAS Aviation Services, Inc., One West Street, Suite 100-5, New York, New York 10004 (herein called “Lessor”), and Hawaiian Airlines, Inc., a Delaware corporation, having its principal place of business at 3375 Koapaka Street, Suite G350, Honolulu, Hawaii 96819 (herein called “Lessee”).

RECITALS

A.Lessor and Lessee have heretofore entered into a Lease Agreement dated as of September 20, 2001, as supplemented by a Lease Supplement dated September 23, 2002, which were both recorded with the Federal Aviation Administration as one document on October 3, 2002, and assigned Conveyance Number F81267, as amended by Amendment No. 1 to Lease Agreement dated as of September 23, 2002, which was recorded by the FAA on December 18, 2002 and assigned Conveyance Number II027157, and Amendment No. 2 to Lease Agreement dated as of May 7, 2003 (hereafter, “Amendment No. 2”), which was recorded by the FAA on June 25, 2003 and assigned Conveyance Number QQ027273 (hereafter, collectively, the “Lease”), pursuant to which Lessor has leased to Lessee one Boeing (also shown as BOEING on the International Registry drop down menu) Model 767-33AER (also shown as 767-300 on the International Registry drop down menu)  aircraft bearing manufacturer’s serial number 33421 and US Registration Number N587HA, together with two Pratt & Whitney (also shown as PRATT & WHITNEY on the International Registry drop down menu) Model PW4060 (also shown as PW4000 94 on the International Registry drop down menu) engines installed thereon bearing manufacturer’s serial numbers P729108 and P729109 (also shown as 729108 and 729109 on the International Registry drop down menu), respectively.

B.Lessor and Lessee wish to amend the terms of the Lease on the terms and conditions set forth herein.

C.Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Lease and reference to “Articles” herein shall be construed to refer to Articles of the Lease.

TERMS AND CONDITIONS

Therefore, in consideration of the premises, and for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto hereby agree as follows, with effect from the Effective Date (as such term is defined in Paragraph 11, below):

1.The definition of “Companion Lease” in Article 1 of the Lease is hereby amended by adding the following at the end thereof:

“; provided, however, that upon the termination of any of the foregoing Lease Agreements (whether as a result of the purchase by Lessee of the relevant aircraft or the occurrence of the Lease Expiration Date (as defined below), such terminated Lease Agreement shall no longer be deemed a Companion Lease.”

2.Article 3(a) of the Lease is amended and restated in its entirety as follows:

“(a)Term.  Except as otherwise provided herein, the Aircraft shall be leased to Lessee hereunder for a Term that commences on September 23, 2002, and ends on a date (the “Lease Expiration Date”) during the period August 31, 2009, to February 28, 2010 (both dates inclusive) as specified by Lessee to Lessor in writing (the “Lease Expiration Date Notice”) on or before November 30, 2008; provided, that if Lessee gives the Lease Expiration Date Notice to Lessor but such notice is dated after November 30, 2008, or if, for any reason, Lessee fails to give Lessor the Lease Expiration Date Notice, the Term of this Lease shall in any event end on November 30, 2009.”

3.Paragraph 1 of Schedule “1” of the Lease is amended and restated in entirety as provided in Paragraph 1 of Schedule I hereto.

4.Article 3(b) of the Lease is amended and restated in its entirety as follows:

“Lessee shall pay Lessor Basic Rent for the Aircraft throughout the Term in consecutive monthly in advance payments, due and payable commencing on September 23, 2002, and on the 23rd day in each calendar month thereafter through the Lease Expiration Date.  The amount of each monthly Basic Rent payment payable for the Aircraft throughout the Term shall be as specified in paragraph 3 of Schedule “1” hereto.  In the event the Lease Expiration Date occurs on a date other than the 22nd of a calendar month, on the Lease Expiration Date, provided no Event or Event of Default shall have occurred and be continuing hereunder, Lessor shall refund to Lessee the amount set forth in the last paragraph of Paragraph 3 of Schedule “1” hereto for each day in the period from and excluding the Lease Expiration Date to and excluding the next 22nd of a calendar month to occur after the Lease Expiration Date.”

5.Paragraph 3 of Schedule “1” of the Lease is amended and restated in entirety as provided in Paragraph 2 of Schedule I hereto.

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6.The following is inserted as Article 3(c) of the Lease, and all references to “Security Deposit” originally contained in the Lease Agreement (as originally entered into) and which were deemed deleted pursuant to the last clause of paragraph 3 of Amendment No. 2, are reinstated:

(c)Security Deposit.  Lessee shall provide Lessor with the cash Security Deposit specified in paragraph 4 of Schedule “1” hereto, to be held by Lessor as security for performance of all Lessee’s obligations hereunder and under the Companion Leases.  Lessee agrees to maintain the Security Deposit with Lessor for the full amount required under this Article 3(c) and paragraph 4 of Schedule “1” until all Lessee’s obligations hereunder have been fully performed.  Lessor may commingle the Security Deposit with its general funds, and Lessee shall not be entitled to any interest or other earnings thereon.  The Security Deposit under this Lease is in addition to the security deposit required under each Companion Lease.

“If an Event of Default occurs and shall be continuing or shall result in the termination or cancellation of this Lease by Lessor, in addition to any other rights or remedies Lessor may have hereunder or under any Companion Lease, Lessor shall be entitled, at its option, to apply the Security Deposit towards any or all amounts due under this Lease or under any Companion Lease, whether such amounts due constitute Basic Rent payments hereunder or thereunder, damages for breach of this Lease or a Companion Lease, or other Rent payments hereunder or thereunder, all in Lessor’s sole discretion.”

7.Paragraph 4 of Schedule “1” of the Lease is amended and restated in entirety as provided in Paragraph 3 of Schedule I hereto.

8.Article 4(b)(i) of the Lease is hereby amended by deleting the reference therein to “Hawaii” and replacing the same with “Delaware”.

9.Lessee represents and warrants to Lessor on the date this Amendment is signed by Lessor and Lessee, and on the Effective Date, that:

(i)Lessee is a corporation duly organized and existing in good standing under the laws of Delaware, has full power, authority and legal right to own its properties and to carry on its business as presently conducted and to perform its obligations under the Lease, as amended hereby, holds all licenses, certificates and permits from all governmental authorities necessary for the conduct of its business, and is duly qualified to do business as a corporation in good standing in each jurisdiction in which the failure to be so qualified would have a materially adverse effect on Lessee or on its ability to perform its obligations under the Lease, as amended hereby.

(ii)This Amendment has been duly authorized by all necessary action on the part of Lessee, and neither the execution and delivery hereof nor the consummation of the transactions contemplated hereby nor compliance by Lessee with any of the terms and provisions hereof does or will violate any provision of the articles of incorporation or by-laws of Lessee or any law, rule, regulation, judgment, order or decree of any government or governmental instrumentality or court having jurisdiction over Lessee, or any of its activities or properties, or does or will result in any breach of, or constitute any default under, or result in the creation of any Lien upon any property of Lessee under, any indenture, mortgage, deed of trust, conditional sale contract, loan or credit agreement, or other agreement or instrument to which Lessee is a party or by which Lessee or its properties may be bound or affected.

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(iii)Neither the execution and delivery by Lessee of this Amendment nor the performance by Lessee of any of the transactions contemplated hereby require the consent, approval, order or authorization of, or registration with, or the giving of notice to, the Aeronautics Authority or any other domestic or foreign governmental authority, except for the approvals, authorizations and consents that have heretofore been obtained, true and complete copies of which have been delivered to Lessor.

(iv)This Amendment has been duly executed and delivered by Lessee and constitutes the legal, valid, binding and enforceable obligation of Lessee, except where the enforceability thereof may be limited by applicable bankruptcy, insolvency or other laws affecting creditors’ rights generally.

(v)Lessee is a Certificated Air Carrier within the meaning of Section 41102 of Title 49 of the United States Code Annotated, and Lessor is entitled to the benefits and protections of Section 1110 of the Bankruptcy Code (11 U.S.C. Section 1110) in respect of the Aircraft leased to Lessee under the Lease, as amended hereby.

10.Lessee shall cause this Amendment, so far as required or permitted by applicable law or regulation, to be kept, filed, registered and recorded at all times in accordance with Article 12 of the Lease.

11.This Amendment shall become effective on the date (the “Effective Date”) that Lessee complies with the following conditions to the reasonable satisfaction of Lessor:

(i)  Lessee shall have provided Lessor with a copy of a resolution of the Board of Directors of Lessee, certified by the Secretary or an Assistant Secretary of Lessee, duly authorizing and ratifying the execution, delivery and performance by Lessee of the obligations of Lessee contemplated by this Amendment, together with an incumbency certificate as to the person or persons authorized to execute and deliver this Amendment and related documents on behalf of Lessee;

(ii)  Lessor shall have received satisfactory legal opinions from counsel to Lessee and FAA counsel as to the matters referred to in Paragraph 9(i) through (v), above, and as to such other matters as Lessor may reasonably request; and

(iii)  all conditions precedent to the effectiveness of each “Amendment No. 3 to Lease Agreement,” dated as of the date hereof, between Lessor and Lessee, amending the Companion Leases for MSN 33422, 33423 and 33424 on substantially the same terms and conditions as set forth herein, shall have been fulfilled and the same shall be in full force and effect.

If Lessee fails to comply with the conditions set forth in the foregoing clauses (i) through (iii) on or before December 29, 2006, at Lessor’s option this Amendment shall become null and void.

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12.On and after the Effective Date of this Amendment, each reference in the Lease to “this Lease”, “hereunder”, “hereof”, or words of like import referring to the Lease shall mean and be a reference to the Lease as amended by this Amendment.  The Lease, except to the extent amended by this Amendment, remains in full force and effect and is hereby in all respects ratified and confirmed.

13.This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  Delivery of an executed counterpart of this Amendment by facsimile shall be equally as effective as delivery of an originally executed counterpart.  Any party hereto delivering an executed counterpart of this Amendment by facsimile shall also deliver an originally executed counterpart but the failure to so deliver a manually executed counterpart shall not affect the validity, enforceability or binding effect hereof.

14.This Amendment shall in all respects be governed by, and construed in accordance with, the internal laws of the State of California, United States of America (without regard to any conflict of laws rule that might result in the application of the laws of any other jurisdiction), including all matters of construction, validity and performance.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers or representatives as of the date first written above.

AWMS I

By:

Title:

HAWAIIAN AIRLINES, INC.

By:

Title:

By:

Title:

Signature Page to Amendment No. 3 to Lease Agreement (33421)

EX-10.23

Exhibit 10.23

EXECUTIVE EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (“Agreement”) dated April 5, 2005 and effective as of May 23, 2005 (“Effective Date”) is entered into by and between David Osborne (“Employee”) and Hawaiian Airlines, Inc., a Hawaii corporation (“Company”).

Company and Employee desire to establish Company’s right to services of Employee, in the capacity described below, on the terms and conditions and subject to the rights of termination hereinafter set forth, and Employee agrees to engage in such employment on those terms and conditions.

In consideration of the mutual agreements hereinafter set forth, Employee and Company have agreed and do hereby agree as follows:

1.             EMPLOYMENT AS SENIOR VICE PRESIDENT — CHIEF INFORMATION OFFICER (“CIO”).  Company does hereby employ and engage Employee as Senior Vice President - CIO, and Employee does hereby accept and agree to such engagement and employment.

a.             Basic Duties.  Employee’s duties during the Employment Period shall be to serve as Senior Vice President — CIO, which shall include having overall charge and responsibility for Information Technology (“IT”) management (encompassing enterprise architecture, plans, and accountability for Company’s IT investments and results), information management, information security (to protect the availability of Company’s computer systems, the integrity of business operations, and the confidentiality of sensitive information), information quality guidelines (oversight and maintenance to ensure and maximize the quality, objectivity, utility, and integrity of information, including statistical information, disseminated by Company), and implementation of and compliance with applicable laws, rules and regulations. The precise scope of the duties of Employee may be modified from time to time at the discretion of Company’s President and Chief Executive Officer (CEO) or his designee(s) consistent with Employee’s titles and general duties and responsibilities hereunder.

b.             Reporting Relationship.  Employee shall at all times report to the President and CEO or his designee(s).

c.             Time and Effort Expected of Employee.  Employee shall devote full time, attention, energy and skill to the performance of Employee’s duties for Company and for the benefit of Company.  Furthermore, Employee shall exercise due diligence and care in the performance of Employee’s duties to Company under this Agreement.

2.             TERM OF AGREEMENT.  The term of this Agreement (“Term”) shall commence on the Effective Date and shall continue for a period of two (2) years, unless terminated earlier as provided in Section 7 of this Agreement.  The term of this Agreement may be extended upon mutual agreement in writing signed by Employee and an authorized representative of Company.  The period of time commencing on the Effective Date and ending on the expiration date of the

Term, or, if earlier, the date of termination of Employee’s employment (“Termination Date”) under this or any successor agreement shall be referred to as the “Employment Period.”

3.             COMPENSATION.

a.             SIGNING BONUS.  As an inducement to enter into this Agreement, Company will pay Employee a signing bonus in the gross amount of $100,000, less applicable withholdings, payable within thirty (30) days after full execution of this Agreement.

b.             BASE SALARY.  Company shall pay Employee, and Employee agrees to accept from Company, a base salary at the rate of TWO HUNDRED AND TWENTY-FIVE THOUSAND DOLLARS AND NO /100THS DOLLARS ($225,000) per year (“Base Salary”), less applicable withholdings required by law or Employee’s benefit plans or other deductions authorized in writing by Employee to be withheld or deducted, payable in equal semi-monthly installments in accordance with Company’s regular payroll practices.  Employee’s Base Salary shall be reviewed annually by Company and may be increased, but not decreased, by Company in its sole and absolute discretion.  Any adjusted amounts under this Section 3.b. will thereafter become the “Base Salary” for purposes of this Agreement.

c.             PERFORMANCE BONUS.  In addition to the Base Salary, Employee shall be eligible to participate during the Employment Period in any performance bonus plan hereafter established for senior officers of Company by the Board of Directors (the “BOD”).  Any award to Employee under that plan shall be payable, less applicable withholdings, in the amount, in the manner, and at the time determined by the BOD, in its sole and absolute discretion. Company will request that the BOD award a target bonus equal to 60% of Employee’s Base Salary, with actual payment amount established annually as a function of overall corporate performance and Employee’s performance relative to previously established management objectives.

d.             STOCK OPTIONS.  In addition to Base Salary, Employee shall be eligible to participate during the Employment Period in any stock option plan hereafter established for the senior officers of Company by the BOD, and to receive an initial grant of a number of option shares and having other terms and conditions consistent with initial grants set forth in the cover letter to this Agreement, and in accordance with plan terms and applicable law. Subject to the foregoing, any award to Employee under such plan shall be made in an amount, in the manner, and at the time determined by the BOD, in its sole and absolute discretion.

e.             LONG TERM INCENTIVE PLANS.  In addition to Base Salary, Employee shall be eligible to participate during the Employment Period in any long term incentive plans hereafter established for the senior officers of Company by the BOD in accordance with plan terms and applicable law.  Any award to Employee under such plan shall be made in an amount, in the manner, and at the time determined by the BOD, on a basis consistent with other senior officers, but otherwise in its sole and absolute discretion.

f.              401(k) PLAN.  Employee shall be eligible to participate in a 401(k) or analogous plan (the “401(k) Plan”) according to its terms, which shall be developed by Company, subject to approval of the BOD, and which shall not occur before Company’s emergence from Chapter 11 bankruptcy.

4.             FRINGE BENEFITS.  During his employment under this Agreement, Employee shall be eligible to participate in, and to be covered by, such employee benefit plans effective generally with respect to Company’s senior vice president employees as those plans may be amended, supplemented, replaced or terminated from time to time, to the extent Employee is eligible under the terms of such plans; and Employee shall be eligible to receive such other fringe benefits as may be granted to Employee from time to time by the BOD or as delegated by it in its sole and absolute discretion.  In addition to the foregoing benefits, Employee shall also receive the following individual benefits:

a.             TRAVEL BENEFITS.  During the Employment Period, Employee and Employee’s spouse and eligible dependents shall be entitled to travel benefits on Company flights (but not charter flights) at a level and under procedures commensurate with the officer level, subject to IRS requirements, and pursuant to Company policy.  Employee and Employee’s spouse and eligible dependents of Employee shall be entitled to travel benefits on other airlines consistent with Company’s interline transportation agreements.

b.             EXECUTIVE LONG-TERM DISABILITY INSURANCE PLAN.  Subject to the applicable waiting periods, Employee will be included, at Company’s expense, in Company’s Executive Long-Term Disability Insurance Plan, as it may be amended, supplemented, replaced or terminated from time to time.

c.             BUSINESS EXPENSES.  Company shall reimburse Employee for any and all reasonable out-of-pocket, necessary, customary, and usual expenses, properly receipted in accordance with Company policies, incurred by Employee on behalf of Company, provided Employee properly accounts to Company for such expenses in accordance with the rules and regulations of the Internal Revenue Service under the Code, and in accordance with the standard policies and procedures of Company to reimburse business expenses, which obligation shall survive the termination of this Agreement.

d.             VACATIONS.  Company will provide reasonable vacations authorized by the President and CEO subject to requirements of operations and as duties may permit, provided that unused vacation will not be accrued and Company will not make payment to Employee for unutilized vacation.

e.             SICK LEAVE.  Reasonable sick leave for illness or injury will also be provided, provided that unused sick leave will not be accrued and Company will not make payment to Employee for unutilized sick leave.

5.             RELOCATION.

a.             Company will reimburse Employee for all reasonable costs related to relocation to Hawaii, which will include, but not be limited to, the following items:  (i) the reasonable out-of-pocket costs of moving his household goods and belongings from his present home to Hawaii, including packing, unpacking, shipping and insurance; (ii) the shipment of one automobile to Hawaii; and (iii) one (1), one-way travel costs (coach) for Employee and his spouse and eligible dependents directly related to Employee’s relocation to Hawaii, (collectively referred to as the ‘Relocation Expenses”).  The Relocation Expenses will be reimbursed to a maximum of $40,000, with appropriate receipts, grossed up for all taxes incurred by employee on such reimbursements.

b.             If, during the first eighteen (18) months following the Effective Date, Company terminates Employee’s employment without Cause then Company will reimburse Employee for reasonable costs described above as Relocation Expenses incurred to relocate from Hawaii (collectively referred to as the “Termination Expenses”).  The Termination Expenses will be reimbursed up to a maximum of the lesser of (i) actual Relocation Expenses paid under Section 5.a. above, or (ii) $40,000, inclusive of tax, with appropriate receipts.

c.             If, during the first twelve (12) months following the Effective Date, Employee voluntarily resigns from Company (other than due to a material breach of this Agreement by Company), Employee agrees to repay Company the full amount Employee received as Relocation Expenses in Section 5.a., and the full amount received by Employee in Section 3. a .

6.             CONFIDENTIAL INFORMATION.  Employee recognizes that by reason of Employee’s employment by and service to Company, Employee will occupy a position of trust with respect to business and technical information of a secret or confidential nature which is the property of Company which will be imparted to Employee from time to time in the course of the performance of Employee’s duties hereunder (the “Confidential Information”).  Employee acknowledges that such information is Company’s valuable and unique asset and agrees that Employee shall not, during or after the Term of this Agreement, use or disclose directly or indirectly any of Company’s Confidential Information to any person, except that Employee may use and disclose to Company’s authorized personnel such Confidential Information as is reasonably appropriate in the course of the performance of Employee’s duties hereunder.  Company’s Confidential Information shall include all information and knowledge of any nature and in any form relating to Company including, but not limited to, business plans; development projects; computer software and related documentation and materials; designs, practices, processes, methods, know-how and other facts relating to Company’s business; and advertising, promotions, financial matters, sales and profit figures, and customers or customer lists.

7.             TERMINATION OF EMPLOYEE’S EMPLOYMENT.

a.             DEATH.  If Employee dies while employed by Company, Employee’s employment shall immediately terminate. Company’s obligation to pay Employee’s Base Salary shall cease as of the date of Employee’s death. Thereafter, Employee’s beneficiaries or estate

shall receive benefits, if any, in accordance with Company’s retirement, insurance, and other applicable benefit plans then in effect.

b.             DISABILITY.  If Employee (i) becomes Disabled, as defined in Company’s Executive Long-Term Disability Plan, (ii) he cannot be reasonably accommodated by Company, and (iii) he commences to receive long-term disability benefits, Employee’s employment may be terminated by Company or Employee.  During any period prior to such termination during which Employee is absent from the full-time performance of Employee’s duties with Company due to Disability, Company shall continue to pay Employee the Base Salary at the rate in effect at the commencement of such period of Disability.  Any such payments made to Employee shall be reduced by amounts received from disability insurance obtained or provided by Company, and by the amounts of any benefits payable to Employee, with respect to such period, under Company’s Executive Long-Term Disability Plan.  Subsequent to the termination provided for in this Section 7.b., Employee’s eligibility for any benefits shall be determined under Company’s retirement, insurance, and other applicable benefit plans then in effect in accordance with the terms of such plans.

c.             TERMINATION BY COMPANY FOR CAUSE.  Company may terminate Employee’s employment under this Agreement for “Cause” at any time prior to expiration of the Term of the Agreement, only upon the occurrence of any one or more of the following events:

(i)            The material breach of this Agreement by Employee, including without limitation, repeated neglect of Employee’s duties, Employee’s repeated material lack of diligence and attention in performing services as provided in this Agreement, or Employee’s repeated failure to implement or adhere to Company policies, in each case after notice to Employee stating the reason for such breach and providing Employee thirty (30) days opportunity to cure, provided however that such notice and opportunity to cure shall not be required to be provided more than three (3) times during the Employment Period prior to termination.

(ii)           Commission of a crime (other than a petty offense or traffic violation) that has a material adverse impact on Company’s reputation and standing in the community.

(iii)          Fraudulent conduct in connection with the business affairs of Company, regardless of whether said conduct is designed to defraud Company or others.

(iv)          Conduct in material violation of Company’s and/or its parent company’s corporate compliance rules, practices, procedures and ethical guidelines.

(v)           Material violation(s) of Company’s House Rules, a copy of which has been provided to Employee by Company.

In the event of termination for Cause, Company’s obligation to pay Employee’s Base Salary and all benefits shall cease as of the Termination Date.  Except as provided above in Section 7.c.(i).,

if Employee’s employment is terminated for Cause, Employee’s employment may be terminated immediately without any advance written notice.

d.             TERMINATION BY COMPANY WITHOUT CAUSE.  Company shall have the right to terminate Employee’s employment prior to the expiration of the Term, at any time, without Cause.  In the event Company shall so elect to terminate Employee’s employment without Cause, Employee shall be entitled to only such payments as may be required under the terms of Section 8 of this Agreement.  Employee agrees that in the event of his termination without Cause, the Term of this Agreement will be deemed to be the period between the Effective Date and the Termination Date.

e.             TERMINATION AT END OF TERM.  If Employee continues to work through the end of the Term, this Agreement will expire at the end of the Term, and Company’s obligation to pay Employee’s compensation and fringe benefits shall cease as of the end of the Term.  In the event either Employee or Company desires Employee to be employed by Company beyond the Employment Period, such party will notify the other in writing of his or its intention 180 days prior to the end of the Term and the parties will negotiate any extension prior to the end of the Term (“Extension Negotiation Period”).  If the parties do not reach agreement to extend Employee’s employment during the Extension Negotiation Period, Employee’s employment shall end on the last day of the Term and Employee shall be entitled to an amount equal in total to six months of prorated Employee’s Base Salary and medical/dental premiums in addition to the remainder of compensation and benefits owed under the Term of this Agreement (“the Non-Renewal Sum”).  The Non-Renewal Sum shall be paid in a lump sum, less applicable withholdings, on the Termination Date.

f.              RESIGNATION BY EMPLOYEE.  If Employee voluntarily resigns his employment at any time during the term of this Agreement, Company’s obligation to pay Employee’s compensation and fringe benefits shall cease as of the date of resignation.  Employee agrees to provide Company with at least thirty (30) days written notice prior to the effective date of resignation. Company may elect, in its sole and absolute discretion, to relieve Employee of his employment duties for all or any part of the thirty (30) day notice period. However, Employee shall continue to receive compensation and benefits under this Agreement through the effective date of his resignation.

g.             RETURN OF COMPANY PROPERTY.  Upon termination, Employee will immediately return all Company issued items, including, but not limited to Company identification badge(s), access card(s), AOA badge(s), travel card, Friendship Travel Passes (FTPs), computer equipment (hardware/software), disks and/or electronic data, fax machine(s), pager(s), company credit card(s), company telephone card(s), access code(s), key(s), company files, work product, manuals, customer lists, company documents, financial information, operational information, plans, memoranda, notes, and correspondence.

h.             PAYMENT OF ACCRUED OBLIGATIONS.  Notwithstanding anything in this Section 7 to the contrary, upon termination of Employee’s employment for any reason, Company

shall pay Employee: (i) Employee’s Base Salary earned and unpaid through the Termination Date, if any, and (ii) unreimbursed expenses payable in accordance with Company policy (“Accrued Expenses”).  The payment of Accrued Expenses shall be made within ten (10) days following Termination Date.

8.             PAYMENTS UPON TERMINATION WITHOUT CAUSE IN EXCHANGE FOR AGREEMENT TO WAIVE ALL CLAIMS.

a.             If, during the Term of this Agreement, Employee’s employment is terminated by Company without Cause, in addition to Accrued Obligations, Employee shall be entitled to the following payments in exchange for a valid release and waiver of all claims through the Termination Date that Employee may have at that time against Company or related persons or entities (“Waiver of All Claims”): Company shall pay to Employee an amount equal to Employee’s Base Salary and medical/dental premiums for one year plus the prorated value of any Performance Bonus to which Employee would have been entitled in the current year (“the Settlement Sum”).  The Settlement Sum shall be paid in a lump sum, less applicable withholdings, on the Termination Date.  Company shall provide all information for continuation of fringe benefits to the extent required by law.

b.             If Employee fails or refuses to agree to a valid Waiver of All Claims through the Termination Date, Employee will not be paid any amounts under this Section 8.

c.             TAX WITHHOLDING OBLIGATIONS. At the time that the Waiver of All Claims is executed, the parties will determine the extent to which any of the payments provided for in this Section 8 may be subject to federal, state, or local tax or other withholdings.  Those tax/withholding obligations will be detailed in the Waiver of All Claims.

d.             NO OTHER COMPENSATION OR BENEFITS POST TERMINATION.  No other payment, compensation or fringe benefit other than as described in this Section 8 and in Section 5.b. shall be provided to, or owed to, Employee after termination with or without Cause.

e.             Employee shall not be required in any way to mitigate the amount of any payment provided for in this Section 8, including, but not limited to, by seeking other employment, nor shall the amount of any payment provided for in this Section 8 be reduced by any compensation earned by Employee as the result of employment with another employer after the Termination Date, or otherwise.

9.             NONCOMPETITION PROVISIONS.

a.             NONCOMPETITION.  During the Term of this Agreement and for a period of twelve (12) months commencing on the Termination Date, Employee agrees and covenants that Employee shall not, directly or indirectly, undertake to become an employee, officer, partner, consultant or otherwise be connected with any entity (i) for which, at such time, in excess of 10% of its revenues are derived from airline operations (including without limitation, passenger,

charter, military, cargo, or other airline operations) within Hawaii and/or between Hawaii and the mainland United States, or (ii) in which Employee’s specific duties and responsibilities are in direct competition with Company either within Hawaii or on routes to and from Hawaii serviced by Company. Employee acknowledges and agrees that any breach of this non-competition provision shall entitle Employer to immediately terminate any payments to him pursuant to Section 8 of this Agreement.  In addition, Employee agrees that any breach or threatened breach of this provision 9.a. will entitle Company to an injunction from any court having jurisdiction over Employee, it being agreed that any such breach would irreparably harm Company.  In addition, Company will be entitled to such damages as may be proved in court arising from such breach.

b.             NONDISPARAGEMENT.  During the Term of this Agreement and for a period of twelve (12) months commencing on the Termination Date, Employee agrees that he shall not make any statements that disparage or tend to disparage Company, its products, services, officers, employees, advisers or other business contacts, and Company agrees that its officers and management employees of Company’s human resources department shall not make any statements that disparage or tend to disparage Employee.  The parties acknowledge and agree that each act of such disparagement shall entitle the other to $5,000 in liquidated damages, which shall be awarded by an arbitrator pursuant to the provisions of Section 11 of this Agreement.  In addition, Employee acknowledges that any breach of this non-disparagement provision shall entitle Company to immediately terminate any payments pursuant to Section 8 of this Agreement.  Nothing herein shall be construed to apply to limit Company in its exercise of Section 7.c. or permit sanctions for statements made in the exercise of such provision.

c.             RIGHT TO COMPANY MATERIALS.  Employee agrees that all styles, designs, lists, materials, books, files, reports, correspondence, e-mails and other paper and electronically stored information, records, and other documents (“Company Materials”) used, prepared, or made available to Employee, shall be and shall remain the property of Company.  Upon the termination of employment or the expiration of this Agreement, all Company Materials shall be returned immediately to Company, and Employee shall not make or retain any copies thereof.

d.             ANTI-SOLICITATION.  Employee promises and agrees that during the term of this Agreement and for a period of twelve (12) months commencing on the Termination Date, Employee will not influence or attempt to influence customers or suppliers of Company or any of its present or future subsidiaries or affiliates, either directly or indirectly, to divert their business to any individual, partnership, firm, corporation or other entity then in competition with the business of Company or any subsidiary or affiliate of Company. Employee acknowledges and agrees that any breach of this anti-solicitation provision shall entitle Company to immediately terminate any payments pursuant to Section 8 of this Agreement.  In addition, Employee agrees that each act of such solicitation shall entitle Company to $5,000 in liquidated damages, which shall be awarded by an arbitrator pursuant to the provisions of Section 11 of this Agreement.

e.             SOLICITING EMPLOYEES.  During the term of this Agreement and for a period of twelve (12) months commencing on the Termination Date, Employee promises and agrees that Employee will not directly or indirectly solicit any of Company’s employees to work for any business, individual, partnership, firm, corporation, or other entity.  Employee acknowledges and agrees that any breach of this Soliciting Employees provision shall entitle Company to immediately terminate any payments pursuant to Section 8 of this Agreement. In addition, Employee agrees that each act of such solicitation shall entitle Company to $5,000 in liquidated damages, which shall be awarded by an arbitrator pursuant to the provisions of Section 11 of this Agreement.

10.           NOTICES.  All notices,requests, demands and other communications hereunder shall be in writing and shall be effective upon receipt.  All notices shall be given or served personally or sent by facsimile or first class mail, postage prepaid, addressed as follows:

If to Company:

Hawaiian Airlines, Inc.
Attn:  Senior Vice President, People Services Group
3375 Koapaka Street, Suite H-460
Honolulu, Hawaii 96819
Phone:    808/835-3628
Fax:         808/838-6731

If to Employee:

David J. Osborne
At Employee’s address set forth on the payroll records of Company.

or to such other address which the party receiving the notice has notified the party giving the notice in the manner aforesaid.

11.           ARBITRATION CLAUSE/ATTORNEY’S FEES.  Any controversy or claim arising out of or relating to this Agreement (other than a breach of Provision 9.a.) shall be settled by expedited arbitration administered by Dispute Prevention and Resolution, Inc. (“DPR”) in Honolulu, Hawaii under its rules applicable to the arbitration of employment disputes, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.  In the event judicial, quasi-judicial or arbitral determination is necessary to resolve any dispute arising as to the parties’ rights and obligations hereunder, the parties agree that the losing party shall pay the costs and fees of the prevailing party.  Should there be a disagreement between the parties as to who is the losing party and who is the prevailing party, the judicial, quasi-judicial or arbitral body shall have the jurisdiction to determine that status.

12.           ­ATTORNEY’S FEES FOR ADVICE AND COUNSEL ASSOCIATED WITH THE NEGOTIATION OF THIS AGREEMENT.  Company agrees to reimburse Employee for

reasonable attorney’s fees incurred for advice and counsel associated with the consummation of this Agreement not to exceed $10,000.

13.           TERMINATION OF PRIOR AGREEMENTS.  This Agreement terminates and supersedes any and all prior agreements and understandings between the parties with respect to employment or with respect to the compensation of Employee by Company from, and after the Effective Date.

14.           ASSIGNMENT: SUCCESSORS.  This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of Company with or to any other individual or entity, this Agreement shall, subject to the provisions hereof, be binding upon, and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of Company hereunder.

15.           GOVERNING LAW.  This Agreement and the legal relations thus created between the parties hereto shall be governed by and construed under and in accordance with the laws of the State of Hawaii.

16.           ENTIRE AGREEMENT: HEADINGS.  This Agreement embodies the entire agreement of the parties respecting the matters within its scope and may be modified only in writing.  Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

17.           WAIVER; MODIFICATION.  Company’s failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of, or failure to insist upon strict compliance with, any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times.  This Agreement shall not be modified in any respect except by a writing executed by each party hereto.

18.           SEVERABILITY.  In the event that a court of competent jurisdiction determines that any portion of this Agreement is in violation of any statute or public policy, only the portions of this Agreement that violate such statute or public policy shall be stricken.  All portions of this Agreement that do not violate any statute or public policy shall continue in full force and effect. Further, any court order striking any portion of this Agreement shall modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties under this Agreement.

19.           INDEMNIFICATION.  Company shall indemnify and hold Employee harmless to the maximum extent permitted by Section 415-5 of the Hawaii Business Corporation Act, and the Restated Articles of Incorporation and Amended Bylaws of Hawaiian Airlines, Inc.  Company will maintain a directors and officers liability insurance policy during the term of this

Agreement, which policy shall name Employee as an insured.

20.           COUNTERPARTS.  This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.

21.           FACSIMILE SIGNATURES.  This Agreement may be executed by the parties by facsimile, and facsimile signatures shall be binding.

IN WITNESS WHEREOF, Company has caused this Agreement to be executed by its duly authorized officers, and Employee has hereunto signed this Agreement, as of the date first above written.

HAWAIIAN AIRLINES, INC.:	EMPLOYEE:
Mark B. Dunkerley	David J. Osborne
President and Chief Operating Officer

EX-10.48

Exhibit 10.48

PURCHASE AGREEMENT

(28139)

between

AWMS I,

a Delaware Statutory Trust,

Seller

and

HAWAIIAN AIRLINES, INC.,

a Delaware corporation,

Buyer

Dated as of December     , 2006

One Used Boeing Model 767-300ER Aircraft, MSN 28139

PURCHASE AGREEMENT
(28139)

This PURCHASE AGREEMENT (28139) (this “Agreement”), dated as of December      , 2006, is entered into by and between AWMS I, a Delaware statutory trust, having a place of business at c/o AWAS Aviation Services, Inc., One West Street, Suite 100-5, New York, NY 10004 U.S.A. U.S.A. (“Seller”), and Hawaiian Airlines, Inc., a Delaware corporation, with its principal place of business at 3375 Koapaka Street, Suite G-350, Honolulu, HA 96819 (“Buyer”).

RECITALS

A.            Seller is the owner of one (1) used Boeing Model 767-300ER aircraft bearing Manufacturer’s Serial Number 28139.

B.            Seller desires to sell, and Buyer desires to buy, the above-referenced aircraft and the technical records related thereto, all on the terms and conditions hereinafter provided.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other valuable consideration, receipt of which is hereby acknowledged, Seller and Buyer agree as follows:

ARTICLE 1  DEFINITIONS AND CONSTRUCTION.

1.1                                   Defined Terms.

In this Agreement, the following terms shall have the following meanings and shall be equally applicable to both the singular and the plural forms of the terms defined herein:

“Acceptance Certificate” means the Acceptance Certificate signed by Buyer and Seller on the Closing Date for the Aircraft, substantially in the form and substance attached as Exhibit “A” hereto.

“Affiliate” means, with respect to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under common control with, such Person.  For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether through the ownership of stock, by contract, or otherwise.

“Aircraft” means the Airframe, two (2) Engines and the Parts.

“Airframe” means (i) the one used Boeing (also shown as BOEING on the International Registry drop down menu) Model 767-300ER (also shown as 767-300 on the International Registry drop down menu) airframe, bearing Manufacturer’s Serial No. 28139 and U.S. Identification Number N582HA, excluding the Engines or any other engine that

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may be installed on the Airframe from time to time and (ii) any and all Parts for the Airframe, so long as, at the time of Closing, the same shall be incorporated in, installed on, or attached to the Airframe or so long as title thereto shall as of the Closing Date be vested in Seller in accordance with the terms of Article 6 of the Lease after removal from the Airframe.

“Applicable Law” means any applicable:  (i) statute, decree, constitution, regulation, rule, order or directive of any Government Entity; (ii) treaty, pact, compact or other agreement to which any Government Entity is a signatory or party; and (iii) judicial or administrative interpretation or application of any of the foregoing, as any of the foregoing may be revised, amended, substituted or re-enacted.

“Bills of Sale” means the FAA Bill of Sale and the Warranty Bill of Sale.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banking institutions in Honolulu, Hawaii, and New York, New York, are authorized by law to be closed.

“Cape Town Treaty” means collectively the Convention and the Protocol, together with the Regulations for the International Registry and the International Registry Procedures, and all other rules, amendments, supplements, and revisions thereto.

“Closing” means the closing of the purchase and sale of the Aircraft, as evidenced by the payment of the Purchase Price to Seller and the delivery of the Bills of Sale to Buyer.

“Closing Date” means the date on which the Closing occurs.

“Companion Lease” has the meaning assigned in the Lease.

“Convention” means the Convention on International Interests in Mobile Equipment signed in Cape Town, South Africa on November 16, 2001, as ratified by the United States.

“Delivery Location” has the meaning assigned in Section 3.1.

“Dollars” or “$” means the legal currency of the United States of America.

“Engine” means (i) each of the two used Pratt & Whitney (also shown as PRATT & WHITNEY on the International Registry drop down menu) Model PW4060 (also shown as PW4000 94 on the International Registry drop down menu) engines bearing Engine Manufacturer’s serial numbers P729045 and P729046 (also described on the International Registry drop down menu as 729045 and 729046), respectively, whether or not from time to time installed on the Airframe or installed on any other aircraft, and (ii) any and all Parts for such engine, so long as, at the time of Closing, the same shall be incorporated in, installed on, or attached to such engine or so long as title thereto shall as of the Closing Date be vested in Seller in accordance with the terms of Article 6 of the Lease after removal from such engine.

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“Engine Manufacturer” means United Technologies Corporation, Pratt & Whitney Division, a Delaware corporation.

“Event of Loss” shall have the meaning assigned to such term in the Lease.

“FAA” means the Federal Aviation Administration and any person or Government Entity succeeding to the functions of any of the foregoing.

“FAA Bill of Sale” means the FAA form bill of sale (AC Form 8050-2) for the Aircraft executed and delivered by Seller in favor of Buyer as of the Closing Date.

“Government Entity” means any:  (i) national, federal, state or local government, or any board, commission, bureau, department, division, instrumentality, court, agency, regulatory authority, taxing authority or political subdivision thereof; and (ii) association, organization or institution of which any entity referred to in clause (i) is a member or to whose jurisdiction any such entity is subject or in whose activities any such entity is a participant.

“International Interest” shall have the meaning assigned to such term in the Cape Town Treaty.

“International Registry” shall have the meaning assigned to such term in the Cape Town Treaty.

“Lease” means the Lease Agreement dated as of June 8, 2001, pursuant to which Seller, as lessor, has leased the Aircraft to Buyer, as lessee, as the same may have heretofore been amended, modified or supplemented.

“Lease Termination Agreement means the Lease Termination Agreement between Seller and Buyer pursuant to which the Term of the Lease will be cancelled, with effect from the time of Closing.

“Lien” means any mortgage, pledge, lien, charge, encumbrance, lease, security interest, statutory detention right or claim.

“Maintenance Payments” shall have the meaning assigned to such term in the Lease.

“Manufacturer” means The Boeing Company, a Delaware corporation.

“Operative Documents” means this Agreement, the Acceptance Certificate, the Bills of Sale and all other agreements, instruments and documents entered into in connection herewith or therewith, in each case, as supplemented, amended or otherwise modified from time to time.

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“Parts” means all appliances, components, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (but excluding whole Engines or engines), so long as, at the time of Closing, the same shall be incorporated in, installed on, or attached to the Aircraft, Airframe or any Engine or so long as title thereto shall as of the Closing Date be vested in Seller in accordance with the terms of Article 6 of the Lease after removal from the Aircraft, Airframe or such Engine.

“Permitted Liens” means (i) the Lease and the rights of Buyer, as lessee under the Lease, (ii) any Lien which, under the terms of the Lease, Buyer is obligated to pay or discharge, and (iii) Liens permitted to exist in respect of the Aircraft (or any part thereof) under Article 11(iii) or (iv) of the Lease.

“Person” means any individual, corporation, partnership, limited liability company, limited liability partnership, joint venture, association, joint stock company, trust, unincorporated organization or Government Entity, committee, department, authority and other body, incorporated or unincorporated, whether or not having distinct legal personality.

“Protocol” means the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment signed in Cape Town, South Africa on November 16, 2001, as ratified by the United States.

“Purchase Price” means the consideration to be paid by Buyer to Seller for the sale of the Aircraft and Technical Records as provided in Section 2.2 hereof.

“Sales Taxes” shall have the meaning assigned in Article 5 hereof.

“Scheduled Closing Date” has the meaning set forth in Section 3.2.

“Special Counsel” means McAfee & Taft A Professional Corporation, of Oklahoma City, Oklahoma, special counsel to Seller and Buyer for FAA and International Registry matters.

“Technical Records” means all log books, Aircraft records, manuals and other documentation and data provided to Buyer in connection with the lease of the Aircraft under the Lease or that Buyer is required to maintain or cause to be maintained with respect to the Aircraft pursuant to the terms of the Lease.

“Warranty Bill of Sale” means the Bill of Sale for the Aircraft executed and delivered by Seller to Buyer on the Closing Date, substantially in the form and substance set forth in Exhibit “B”.

1.2                                   Construction.  In this Agreement, headings and the table of contents are inserted for convenience of reference only and have no legal effect and shall be ignored in the interpretation of this Agreement.  Unless the context otherwise requires:  (i) words denoting the singular shall include the plural and vice versa; (ii) words denoting a Person include individuals, corporations, partnerships, firms, joint ventures, trusts,

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Government Entities and other entities and bodies, whether incorporated or unincorporated, and whether having distinct legal personality or not, and vice versa; (iii) words denoting any gender include all genders; (iv) references to any document or agreement are deemed to include references to any such document or agreement as amended, novated, supplemented, varied or replaced from time to time; (v) references to any party to this Agreement or any other document or agreement include its successors and permitted assigns; (vi) reference to Articles or Sections are references to Articles and Sections of this Agreement; and (vi) the term “including”, when used in this Agreement, means “including without limitation” and “including but not limited to”.

ARTICLE 2  PURCHASE AND SALE OF AIRCRAFT.

2.1           Purchase of Aircraft.  Subject to the terms and conditions of this Agreement, on the Closing Date Seller agrees to sell to Buyer, and Buyer agrees to purchase from Seller, all of Seller’s right, title and interest in and to the Aircraft and Technical Records, free and clear of all Liens (other than Permitted Liens).  Seller and Buyer each agrees to perform and observe all terms, conditions, obligations and agreements to be performed or observed by it hereunder and under the other Operative Documents to which it is a party.  Time is of the essence, and the parties agree to take all action as may be reasonably required to complete the purchase and sale of the Aircraft as promptly as possible.

2.2           Purchase Price and Payment.  In consideration of the sale of the Aircraft and Technical Records by Seller to Buyer, at Closing Buyer agrees to pay to Seller the sum of Fifty Million Two Hundred Fifty Thousand Dollars ($50,250,000) (the “Purchase Price”).

Provided all payments that have become payable under the Lease and under any Companion Lease have been paid, Lessor shall credit towards payment of the Purchase Price the aggregate Maintenance Payments held by Lessor as of the Closing.

The Purchase Price, and all other amounts payable by Buyer to Seller hereunder, shall be paid to Seller, without deduction for any taxes, withholdings or other deductions, immediately prior to the transfer of title to the Aircraft described in Section 2.4, in immediately available funds, at the following bank and account:

BANK:	Deutsche Bank Trust Company Americas 60 Wall Street, 26th Floor New York, New York 10005
ACCOUNT NO:	01-474-320
ABA NO:	021001033
SWIFT::	BKTRUS33
ACCOUNT NAME:	AWAS Rental Account
REFERENCE:	HAL - Boeing 767-300ER Sale

or at such other location or account as Seller shall designate to Buyer in writing.

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2.3           Inspection; Condition of Aircraft at Delivery.  Pursuant to the Lease, Buyer has been the lessee in possession of the Aircraft from the time of delivery of the Aircraft from the Manufacturer.  Accordingly, the Aircraft is being sold hereunder “AS-IS, WHERE-IS and entirely in reliance on the knowledge of Buyer in respect of the Aircraft and Technical Records.

2.4           Title Transfer.  Title to and risk of loss and damage to or destruction of the Aircraft and Technical Records shall transfer from Seller to Buyer at the time of Closing by delivery of the Bills of Sale to Buyer.  Without affecting Buyer’s rights and obligations under the Lease, Buyer shall not as a result of this Agreement acquire any insurable or other ownership interest in the Aircraft prior to acceptance of delivery thereof and payment of the Purchase Price by Buyer in accordance with the terms of this Agreement.  Acceptance of delivery of the Aircraft and Technical Records by Buyer shall be evidenced by the execution and delivery by Buyer and Seller of the Acceptance Certificate on the Closing Date.

ARTICLE 3  CLOSING.

3.1           Place of Closing.  The Closing will occur while the Aircraft at such location as may be mutually agreed by Seller and Buyer (“Delivery Location”).  Buyer shall be responsible at its own expense to cause the Aircraft to be at the Delivery Location at the time of Closing.

3.2           Scheduled Closing Date.  Subject to the provisions of Article 4 hereof, Seller shall tender the Aircraft and the Technical Records for sale to Buyer, and Buyer shall purchase the Aircraft and the Technical Records upon tender thereof by Seller, currently scheduled to occur on December 29, 2006, or such other date as Seller and Buyer may agree (“Scheduled Closing Date”).

3.3           Closing Events.  At the Closing on the Closing Date, the following shall take place:

(a)           immediately prior to the transfer of title to the Aircraft to Buyer, Buyer shall pay the Purchase Price to Seller as provided in Section 2.2;

(b)           Seller and Buyer shall execute and deliver to each other counterparts of the Acceptance Certificate;

(c)           Seller shall execute and deliver to Buyer the Bills of Sale;

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(d)           Buyer and Seller shall have caused the Application to Register the Aircraft with the FAA, the FAA Bill of Sale and the Lease Termination Agreement to be positioned in Oklahoma City for filing for recordation with the FAA; and

(e)           Buyer and Seller shall have caused a copy of the Warranty Bill of Sale to be positioned with Special Counsel for filing for recordation with the International Registry of an International Interest in the Airframe and Engines.

3.4           Failure of Closing to Occur.  In the event the Closing has not occurred by December 29, 2006, or such other date as may be mutually agreed by Seller and Buyer, then this Agreement shall terminate as of 5:00 pm, New York City time, on December 29, 2006 (or such other date as may have been mutually agreed by Seller and Buyer).  Upon such termination, the parties shall be released from their respective obligations hereunder, except that the Lease shall remain in full force and effect, unchanged, and Buyer shall return to Seller all documents, agreements and other items or things pertaining to this Agreement or the other Operative Documents that have previously been provided to Buyer in connection herewith.

ARTICLE 4  CLOSING CONDITIONS.

4.1           Buyer’s Closing Conditions.  The obligation of Buyer to purchase the Aircraft and Technical Records hereunder is subject to the satisfaction of each of the following conditions (or waiver thereof by Buyer) to the reasonable satisfaction of Buyer:

(a)                           Within five (5) days after the date this Agreement is signed by Seller and Buyer, Buyer shall have received evidence of the authority of Seller to enter into this Agreement and the other Operative Documents to be entered into by it as contemplated by this Agreement and to perform the obligations to be performed by it hereunder and thereunder.

(b)                           At (or prior to) the Closing, Buyer shall have received the Bills of Sale, the Acceptance Certificate, the Lease Termination Agreement, and this Agreement, each duly executed and delivered by Seller.

(c)                           On the Closing Date, the representations and warranties of Seller contained in Section 7.1 shall be true, accurate and complete as though made on and as of the Closing Date (except to the extent that such representations and warranties relate solely to an earlier date, which representations and warranties shall have been true, accurate and complete as of the date made).

(d)                           As of the Closing, Seller shall not be in default in the performance or observance of any of its obligations hereunder.

4.2           Seller’s Closing Conditions.  The obligation of Seller to sell the Aircraft and Technical Records to Buyer at the time of Closing is subject to the satisfaction of each of the following conditions (or waiver thereof by Seller) to the reasonable satisfaction of Seller:

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(a)           Within five (5) days after the date this Agreement is signed by Seller and Buyer, Seller shall have received evidence of the authority of Buyer to enter into this Agreement and the other Operative Documents to be entered into by it as contemplated by this Agreement and to perform the obligations to be performed by it hereunder and thereunder.

(b)           Immediately prior to the Closing, Buyer shall have paid Seller the full Purchase Price in accordance with Section 2.2.

(c)           At (or prior to) the Closing, Seller shall have received the Acceptance Certificate, the Lease Termination Agreement, and this Agreement, each duly executed and delivered by Buyer.

(d)            On the Closing Date, the representations and warranties of Buyer contained in Section 7.2 shall be true, accurate and complete as though made on and as of the Closing Date (except to the extent that such representations and warranties relate solely to an earlier date, which representations and warranties shall have been true and accurate as of the date made).

(e)           Seller shall have received an insurance certificate evidencing the insurances required by Article 10 hereof.

(f)            As of the Closing, Buyer shall not be in default in the performance of any of its obligations hereunder.

4.3           Additional Closing Conditions.  The obligation of Seller to sell and of Buyer to purchase the Aircraft and Technical Records at the time of Closing is subject to the prior or concurrent satisfaction of the following additional conditions (or the waiver thereof by Buyer or Seller, or both, as the context may require) to the reasonable satisfaction of Seller and Buyer:

(a)           As of the Closing Date, no action or proceeding shall have been instituted and no order, judgment or decree shall have been issued by any Government Entity to set aside, restrain, enjoin or prevent the execution, delivery or performance of this Agreement or the other Operative Documents or the consummation of the transactions contemplated hereby or thereby.

(b)           Buyer shall have caused the Application for Aircraft Registration in Buyer’s name, and Seller and Buyer shall have caused the FAA Bill of Sale and the Lease Termination Agreement, to be duly filed with the FAA (and Seller and Buyer agree to take all actions necessary to preposition such duly signed documents with Special Counsel prior to the Closing Date for filing with the FAA at the time of Closing).

(c)           Seller and Buyer shall have caused a copy of the Warranty Bill of Sale to be duly filed with the International Registry (and Seller and Buyer agree to take all actions necessary prior to Closing (i) to preposition such Warranty Bill of Sale with Special Counsel for filing with the International Registry at the time of Closing, and (ii) to ensure and enable proper filing of such Warranty Bill of Sale with the International Registry at the time of Closing).

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(d)           Seller and Buyer shall have received a legal opinion from Special Counsel as to the status of the filings with the FAA in respect of the Lease Termination Agreement and the Aircraft, the status of filings with the International Registry in respect of the Warranty Bill of Sale, and the absence of any Liens of record with the FAA and the International Registry (other than Permitted Liens) in respect of the Aircraft.  Seller and Buyer shall equally share the cost of obtaining such legal opinion from Special Counsel.

4.4           Excusable Delay.  Seller and Buyer shall not be responsible for nor be deemed to be in default in the performance or observance of any obligation, agreement or condition under this Agreement on account of any delay in tender of delivery of the Aircraft or other performance hereunder due to any of the following causes: acts of God; war, warlike operations, insurrections or riots; fires; floods or explosions; serious accidents; any act of government, strikes or labor troubles causing cessation, slow-down or interruption of work; or due to any other cause beyond Seller’s or Buyer’s (as applicable) control and not occasioned by Seller’s or Buyer’s (as applicable) fault or negligence.  Each party shall promptly notify the other party of any delay or anticipated delay in the tender of delivery of the Aircraft for sale or other performance hereunder.  If the delivery of the Aircraft is delayed for a period in excess of sixty (60) days beyond the date specified in or agreed to pursuant to Section 3.4, this Agreement shall automatically terminate and, in such event, each party shall be relieved and discharged of liability to the other party with respect to this Agreement and the other Operative Documents.

ARTICLE 5  SALES TAXES.

5.1           Buyer and Seller shall cooperate with each other in all reasonable respects to lawfully minimize or eliminate the imposition of any sales, use, excise, stamp, transfer, value added, gross receipts or any other taxes, duties, fees or charges (collectively, “Sales Taxes”) that may be imposed on Seller, Buyer or the Aircraft (or any Engine) by any Government Entity in any jurisdiction as a result of the sale or purchase of the Aircraft under this Agreement.  The Purchase Price of the Aircraft does not include the amount of any Sales Taxes that may be imposed by any Government Entity in any jurisdiction as a result of the sale of the Aircraft under this Agreement.  Buyer shall promptly pay when due, and will on demand indemnify and hold harmless Seller on a full indemnity basis from and against, all Sales Taxes, and all penalties, fines, additions to tax and interest thereon, which may be levied by any Government Entity in any jurisdiction as a result of or in connection with the sale, purchase, delivery or registration of the Aircraft (which, subject to Section 5.2, shall in any event exclude net income taxes imposed on the net income of Seller by the United States or Delaware).

5.2           Any payment or indemnity made under Section 5.1 by Buyer shall include any amount necessary to hold Seller harmless on an after-tax basis from all taxes, fees and other charges required to be paid with respect to such payment or indemnity under all Applicable Laws of the relevant Government Entity.

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ARTICLE 6  INSPECTION BY BUYER; SELLER DISCLAIMER.

6.1           BUYER CONFIRMS THAT IT HAS KNOWINGLY WAIVED ITS RIGHT TO INSPECT THE AIRCRAFT AND THE TECHNICAL RECORDS AND, IN LIUE THEREOF, IS RELYING EXCLUSIVELY ON ITS CAPACITY AS LESSEE OF THE AIRCRAFT AND ON ITS OWN KNOWLEDGE OF THE AIRCRAFT AND THE TECHNICAL RECORDS, AND HEREBY CONFIRMS TO SELLER THAT IT IS NOT RELYING ON ANY INSPECTION, REPRESENTATION OR LEGAL RESPONSIBILITY ON THE PART OF SELLER OR SELLER’S OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AFFILIATES, AGENTS, ATTORNEYS OR REPRESENTATIVES.  DELIVERY OF THE ACCEPTANCE CERTIFICATE BY BUYER TO SELLER WILL BE CONCLUSIVE PROOF AS BETWEEN SELLER AND BUYER THAT THE AIRCRAFT AND THE TECHNICAL RECORDS ARE IN EVERY WAY SATISFACTORY TO BUYER AND IN COMPLIANCE WITH ALL REQUIREMENTS HEREOF.

6.2           THE AIRCRAFT, TECHNICAL RECORDS, AND ANY OTHER THING DELIVERED, SOLD OR TRANSFERRED HEREUNDER ARE BEING SOLD AND TRANSFERRED TO BUYER AND ACCEPTED BY BUYER HEREUNDER “AS-IS, WHERE-IS,” WITH ALL FAULTS.  BUYER UNCONDITIONALLY ACKNOWLEDGES THAT NEITHER SELLER NOR ANY OF SELLER’S OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AFFILIATES, AGENTS, ATTORNEYS OR REPRESENTATIVES HAS MADE OR SHALL BE DEEMED TO HAVE MADE ANY PROMISE, GUARANTY, REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESCRIPTION, AIRWORTHINESS, SERVICEABILITY, VALUE, CONDITION, DESIGN, COMPLIANCE WITH SPECIFICATIONS, AGE, OPERATION, PERFORMANCE, MERCHANTABILITY, FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY PART THEREOF OR AS TO THE ADEQUACY OF ANY TECHNICAL RECORDS, OR AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE AND WHETHER KNOWN OR UNKNOWN, OR AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT OR TECHNICAL RECORDS, OR ANY PART THEREOF, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND EXTINGUISHED.

6.3           BUYER HEREBY WAIVES, RELEASES AND RENOUNCES AND AGREES NOT TO SEEK TO ESTABLISH OR ENFORCE ANY RIGHTS, REMEDIES OR CLAIMS (WHETHER STATUTORY OR OTHERWISE) AGAINST

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SELLER OR ANY OF SELLER’S OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AFFILIATES, AGENTS, ATTORNEYS OR REPRESENTATIVES IN RESPECT OF ANY OF THE MATTERS SET FORTH IN SECTION 6.2.  WITHOUT LIMITING THE FOREGOING, BUYER WAIVES ANY CLAIM, LIABILITY, RESPONSIBILITY, WARRANTY, REPRESENTATION, GUARANTY, LIABILITY AND OBLIGATION OF ANY KIND (WHETHER KNOWN OR UNKNOWN) THAT BUYER OR ANY OTHER PERSON CLAIMING UNDER OR THROUGH BUYER MAY NOW OR HEREAFTER HAVE OR CLAIM AGAINST SELLER, ITS OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AFFILIATES, AGENTS, ATTORNEYS OR REPRESENTATIVES, WITH RESPECT TO:  (i) ANY REPAIR, MAINTENANCE OR OTHER SERVICES IN RESPECT OF THE AIRCRAFT, WHETHER IN CONTRACT OR IN TORT AND HOWSOEVER ARISING AND WHETHER PERFORMED OR TO BE PERFORMED; (ii) ANY COST, LOSS OR DAMAGE (CONSEQUENTIAL OR OTHERWISE), LOSS OF PROFIT OR REVENUE, LOSS OR SUSPENSION OF CERTIFICATION OF THE AIRCRAFT, GROUNDING OF THE AIRCRAFT, OR ANY OTHER CLAIM WHATSOEVER ARISING FROM THE CONDITION OF THE AIRCRAFT OR ANY PART THEREOF, ANY MAINTENANCE OR REPAIR OF THE AIRCRAFT OR ANY PART THEREOF, ANY ALTERATION, MODIFICATION OR ADDITION TO THE AIRCRAFT OR ANY PART THEREOF, OR ANY INSPECTION OF THE AIRCRAFT OR THE TECHNICAL RECORDS, WHETHER PERFORMED OR TO BE PERFORMED BY OR ON BEHALF OF SELLER OR BUYER, OR THE LACK OF SUCH INSPECTION BY OR ON BEHALF OF SELLER OR BUYER; AND (iii) ANY OBLIGATION OR LIABILITY OF SELLER OR ANY OF SELLER’S OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AFFILIATES, AGENTS, ATTORNEYS OR REPRESENTATIVES WITH RESPECT TO ANY IMPLIED WARRANTY OF MERCHANTABILITY, ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, USAGE OR TRADE, ANY IMPLIED WARRANTY OF FITNESS FOR USE OR FOR ANY PARTICULAR PURPOSE, AND ANY OBLIGATION OR CLAIM FOR LOSS OF USE OF OR THE LOSS OF OR DAMAGE TO THE AIRCRAFT, OR ANY PART THEREOF, FOR ANY REASON, AND FOR ANY LIABILITY OF BUYER TO ANY THIRD PARTY AND FOR ANY OTHER DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE, WHETHER OR NOT ARISING FROM THE NEGLIGENCE (ACTUAL OR IMPUTED) OF SELLER OR ANY OF SELLER’S OFFICERS, DIRECTORS, MANAGERS, EMPLOYEES, AFFILIATES, AGENTS, ATTORNEYS OR REPRESENTATIVES, AND ANY RISKS WITH RESPECT THERETO ARE HEREBY ASSUMED BY BUYER

6.4           THE FOREGOING DISCLAIMERS AND WAIVERS SHALL NOT BE CONSTRUED TO BE A WAIVER BY BUYER OF CLAIMS AGAINST SELLER ARISING FROM SELLER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OR SELLER’S BREACH OF THE TERMS, COVENANTS, CONDITIONS, REPRESENTATIONS OR WARRANTIES SET FORTH HEREIN OR IN ANY OF THE OTHER OPERATIVE DOCUMENTS MADE BY, APPLICABLE TO, OR TO BE PERFORMED BY SELLER.

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ARTICLE 7  REPRESENTATIONS AND WARRANTIES.

7.1  Seller represents and warrants to Buyer that:

(a)           Seller is a statutory trust, duly organized and validly existing under the laws of Delaware, and has full power, legal right and authority to carry on its business as presently conducted and to execute and deliver this Agreement and the other Operative Documents and perform its obligations hereunder and under and the other Operative Documents.

(b)           The execution, delivery and performance by Seller of this Agreement (i) have been duly authorized by all necessary action on the part of Seller, (ii) do not require any consent, authorization, license or approval of or notice to any Person, except such consents, authorizations, licenses, approvals and notices that, as of the date hereof, have been received or given, (iii) do not conflict with or contravene Seller’s constitutional documents or any Applicable Law relating to Seller or any contractual restriction of any kind binding on or affecting Seller or any of its properties or assets, (vi) do not contravene, violate or result in any breach of, or constitute any default under, any indenture, mortgage, chattel mortgage, deed of trust or other agreement or instrument to which Seller is a party or by which Seller or any of its properties or assets is or may be bound or affected, and (vii) will not result in the creation of any Lien on any of Seller’s properties or assets.

(c)           Seller has (or, with respect to any Operative Document executed and delivered after the date hereof, upon execution and delivery thereof shall have) duly executed and delivered this Agreement and the other Operative Documents to which Seller is a party, and this Agreement and each of the other Operative Documents constitutes (or, with respect to any such other Operative Document executed and delivered after the date hereof, upon execution and delivery thereof shall constitute) the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of general application affecting the enforcement of creditor’s rights.

(d)           There are no pending or, to the best of Seller’s knowledge, threatened actions or proceedings affecting Seller before any Government Entity or arbitrator challenging or otherwise relating to the execution, delivery or performance by Seller of this Agreement or which could materially adversely affect the operations of Seller or the Aircraft.

(e)           No event or condition has occurred or is existing that constitutes or, after the giving of notice or lapse of time or both, would constitute a default under or a breach of this Agreement or any other Operative Document by Seller.

(f)            Seller has good and marketable title to the Aircraft, free and clear of all Liens (other than Permitted Liens).

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7.2           Buyer represents and warrants to Seller that:

(a)           Buyer is a corporation, duly organized and validly existing under the laws of Delaware, and has full power, legal right and authority to carry on its business as presently conducted and to execute and deliver this Agreement and the other Operative Documents and perform its obligations hereunder and under and the other Operative Documents.

(b)           The execution, delivery and performance by Buyer of this Agreement (i) have been duly authorized by all necessary action on the part of Buyer, (ii) do not require any consent, authorization, license or approval of or notice to any Person, except such consents, authorizations, licenses, approvals and notices that, as of the date hereof, have been received or given, (iii) do not conflict with or contravene Buyer’s constitutional documents or any Applicable Law relating to Buyer or any contractual restriction of any kind binding on or affecting Buyer or any of its properties or assets, (vi) do not contravene, violate or result in any breach of, or constitute any default under, any indenture, mortgage, chattel mortgage, deed of trust or other agreement or instrument to which Buyer is a party or by which Buyer or any of its properties or assets is or may be bound or affected, and (vii) will not result in the creation of any Lien on any of Buyer’s properties or assets.

(c)           Buyer has (or, with respect to any Operative Document executed and delivered after the date hereof, upon execution and delivery thereof shall have) duly executed and delivered this Agreement and the other Operative Documents to which Buyer is a party, and this Agreement and each of the other Operative Documents constitutes (or, with respect to any such other Operative Document executed and delivered after the date hereof, upon execution and delivery thereof shall constitute) the legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other laws of general application affecting the enforcement of creditor’s rights.

(d)           There are no pending or, to the best of Buyer’s knowledge, threatened actions or proceedings affecting Buyer before any Government Entity or arbitrator challenging or otherwise relating to the execution, delivery or performance by Buyer of this Agreement or which could materially adversely affect the operations of Buyer or the Aircraft.

(e)           No event or condition has occurred or is existing that constitutes or, after the giving of notice or lapse of time or both, would constitute a default under or a breach of this Agreement or any other Operative Document by Buyer.

ARTICLE 8  LOSS OR DAMAGE PRIOR TO DELIVERY.

If an Event of Loss of the Aircraft or Airframe occurs prior to Closing, neither Seller nor Buyer shall have any obligation to sell or purchase the Aircraft, and the parties hereto shall have no further liability to each other hereunder or under the other Operative Documents.  If the Aircraft, Airframe or an Engine suffers any damage or loss prior to

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Closing that does not constitute an Event of Loss, Buyer shall nevertheless be obligated to purchase the Aircraft hereunder as if such damage or loss had not occurred, but Buyer shall be entitled to any insurance proceeds paid or payable under the insurance provided to Seller pursuant to Article 10(b) of the Lease (to the extent such insurance proceeds are available and are not applied to repair such damage or loss), but without any recourse or warranty on the part of Seller whatsoever, and should Seller receive any such proceeds, it will pay over such amounts to Buyer within two Business Days of receipt thereof.

ARTICLE 9  INDEMNITY.

9.1           Buyer agrees to indemnify, defend, save and hold harmless each of Seller, Seller’s Affiliates, officers, employees, agents, representatives, successors and assigns (each an “Indemnitee”) from and against any and all claims, actions, demands, losses, judgments, damages, costs, expenses (including, without limitation, reasonable attorneys’ fees and expenses), disbursements, charges or liabilities (collectively, “Claims”) which may be incurred by an Indemnitee arising directly or indirectly out of or in any way connected with the condition, ownership, manufacture, design, maintenance, service, repair, overhaul, improvement, modification or alteration, possession, control, use or operation of the Aircraft or any Engine, provided such Claims are not the result of the gross negligence or willful misconduct of such Indemnitee or the breach by such Indemnitee of any of its obligations, representations or warranties hereunder or under the Operative Documents.

9.2           Any payment or indemnity made under Section 9.1 by Buyer shall include any amount necessary to hold the Indemnitees harmless on an after-tax basis from all withholding taxes and other taxes, fees and other charges required to be paid with respect to such payment or indemnity under all Applicable Laws of any Government Entity.

9.3           An Indemnitee will give prompt written notice of any liability for which Buyer is, or may be, liable under this Article 9; provided, however, failure to give such notice will not terminate any of the rights of such Indemnitee under this Article 9, except to the extent that Buyer has been materially prejudiced by the failure to receive such notice.

9.4           Upon payment in full of any indemnity by Buyer, Buyer will be subrogated to any right of the Indemnitee in respect of the matter against which such indemnity has been made.

9.5           If an Indemnitee obtains a recovery of all or any part of any amount which Buyer has paid to such Indemnitee, such Indemnitee will pay to Buyer the amount recovered less any costs and expenses incurred in connection with the recovery.

9.6           Unless a default hereunder has occurred and is continuing, Buyer and its insurers will have the right (in each such case at Buyer’s sole expense) to investigate or, provided that Buyer or its insurers has not reserved the right to dispute liability with respect to any insurance pursuant to which coverage is sought, defend or compromise any claim covered by insurance for which indemnification is sought pursuant to this Article 9 and the

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Indemnitee will cooperate with Buyer and its insurers with respect thereto.  If Buyer or its insurers are retaining attorneys to handle such claim, such counsel must be reasonably satisfactory to the Indemnitee.  If not, the Indemnitee will have the right to retain counsel of its choice at Buyer’s expense.

9.7           The indemnification under this Article 9 shall be effective even though the Indemnitees may have received an agreement indemnifying and holding harmless such Indemnitees with respect to the same matters by another Person.

9.8           The provisions of this Article 9 do not apply to Claims which are Sales Taxes.  The parties agree that the provisions of Article 5 shall govern the indemnification of Claims which are Sales Taxes.

ARTICLE 10        INSURANCE.

From and after the Closing Date, Buyer will carry, or cause any subsequent lessee or purchaser of the Aircraft to carry, and maintain in effect with insurers of recognized responsibility and substantial financial capacity reasonably acceptable to Seller, aviation and airline general third party liability insurance (including, without limitation, passenger legal liability and property damage insurance and war and allied perils) with respect to the Aircraft in amounts which are not less than and are of the types usually carried by entities engaged in the same or similar business, similarly situated with Buyer or any subsequent lessee or purchaser of the Aircraft and owning or operating similar aircraft and which cover risks of the kind customarily insured against by such entities, provided that in no event shall such amount of insurance coverage be less than a combined single limit of liability of $600,000,000 for any one occurrence and in the aggregate for products liability, with Seller and its Affiliates, and their respective officers, employees, agents, representatives, successors and assigns, named as additional insureds under such policies for a period of two (2) years from the Closing Date.

On or before the Closing Date, and prior to the expiration of any such insurance, Buyer will furnish Seller with an insurance certificate and letter of undertaking signed by a firm of independent aircraft insurance brokers of recognized standing and responsibility, certifying that the insurance then carried and maintained on the Aircraft complies with the terms hereof.  In the event that Buyer shall fail to maintain or cause to be maintained the insurance herein required and provide Seller with evidence thereof prior to or concurrently with the expiration of any such insurance, Seller may, at its option, after prior oral or written notice thereof to Buyer, obtain such insurance, and in such event Buyer shall, upon demand, reimburse Seller for the cost thereof, together with interest thereon at the maximum contract rate permitted by Applicable Law.

ARTICLE 11        ASSIGNMENT OF WARRANTIES.

Effective upon the transfer of title of the Aircraft from Seller to Buyer, Seller hereby irrevocably assigns to Buyer all remaining rights and benefits that Seller may have or be entitled to in respect of any and all warranties of Manufacturer and Engine Manufacturer,

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of any maintenance or overhaul facility that has provided any maintenance or services in respect of the Aircraft (or any part thereof), and of any subcontractor, supplier or vendor in respect of any thereof, to the extent that the same are assignable, have not expired, and are not extinguished as a result of this Agreement, and upon the request of Buyer, Seller shall (at Buyer’s cost and expense) use commercially reasonable efforts to assist Buyer in enforcing such rights and benefits of Seller (and, upon the request of Buyer, Seller shall give notice to any such manufacturers, maintenance and overhaul facilities, subcontractor, supplier or vendor of such assignment to Buyer).

ARTICLE 12        MISCELLANEOUS.

12.1         No Assignment.   This Agreement and the rights and obligations of the parties hereunder shall not be assignable or delegable without the prior written consent of the other party.  Subject to the foregoing, this Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of and be binding upon the respective successors and assigns of the parties hereto.

12.2         Entire Agreement.   This Agreement and the other Operative Documents constitute the entire agreement and understanding of Seller and Buyer with respect to the subject matter hereof and thereof.  No amendment, waiver or other modification to this Agreement or any other Operative Document shall be effective unless in writing signed by the party against whom enforcement is sought.

12.3         Notices.  All notices, demands and other communications required or permitted under the terms hereof shall be in writing (which shall include facsimile and electronic mail), in English, and shall be deemed given and received:

(a)           if sent by registered or certified mail, on the third Business Day after deposit in the national mail service of the country from which it is sent, postage prepaid, return receipt requested;

(b)           if sent by any other means of physical delivery, e.g., hand delivery or courier service, when delivered to the appropriate address provided below;

(c)           if sent by facsimile, when transmitted to the appropriate facsimile number provided below and the sender’s facsimile machine produces a transmission or verification report confirming that such transmission has been sent; and

(d)           if sent by electronic mail, when transmitted to the appropriate electronic mail address provided below and the sender’s computer produces a transmission or verification report confirming that such transmission has been sent.

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All such notices, demands and other communications shall be addressed and/or transmitted by facsimile and/or e-mail to the appropriate party at its address and/or facsimile number and/or electronic mail address set forth below, or at such other address or facsimile number or electronic mail address as such party may from time to time hereafter designate to such other parties in writing:

If to Seller:	AWMS I
	c/o AWAS Aviation Services, Inc.
	One West Street, Suite 100-5
	New York, New York 10004
	Attention: General Counsel
	Facsimile No.: (+1-646) 274-1422
	E-Mail Address: notices@awas.com
If to Buyer:	Hawaiian Airlines, Inc.
	3375 Koapaka Street, Suite G-350
	Honolulu, Hawaii 96819
	Attention: Executive Vice President
	and Chief Financial Officer
	Facsimile No.: (+1-808) 835-3695
	E-mail: Peter.Ingram@HawaiianAir.com
	with copy to:
	Ronald W. Goldberg, Esq.
	Orrick, Herrington & Sutcliffe LLP
	777 South Figueroa Street, Suite 3200
	Los Angeles, California 90017
	Facsimile No.: (+1-213) 612-2499
	E-Mail Address: rgoldberg@orrick.com

12.4         Governing Law.    This Agreement shall in all respects be governed by, and construed in accordance with, the laws of the State of California, including all matters of construction, validity and performance (without reference to conflicts of laws principles).  The parties hereto hereby agree to exclude the application of the United Nations Convention on Contracts for the International Sale of Goods (1980), as the same may be amended or superceded from time to time.

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12.5         Submission to Jurisdiction.   Seller and Buyer each irrevocably and unconditionally:

(a)           consents to any suit, action or proceeding arising out of or relating to this Agreement or any other Operative Document being brought against it by the other party in the United States District Court for the Central District of California or the Superior Court of the State of California;

(b)           waives any objection which it may have now or hereafter to the laying of the venue of any such suit, action or proceeding under clause (a), above, in any such court, or claim that any such suit, action or proceeding under clause (a), above, has been brought in an inconvenient forum; and

(c)           acknowledges the competence of any such court, submits to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding and agrees that the final judgment in any such suit, action or proceeding brought in any such court shall be conclusive and binding upon it and may be enforced against it in any other court having jurisdiction over it without relitigation of the merits of the matter adjudicated by such courts.

Seller and Buyer each agrees that service of process may be made upon it personally or by mailing or delivering a copy of the summons and complaint or other legal process in any such legal action or proceeding to its address for notices specified in Section 12.3 (as the same may be changed from time to time by written notice in accordance with Section 12.3).  Seller and Buyer each further agrees to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of the copies thereof by certified air mail and in accordance with Applicable Law, postage prepaid, return receipt requested, to it at its address for notices specified in Section 12.3 (as the same may be changed from time to time by written notice in accordance with Section 12.3), such service to be effective upon the date of receipt indicated on the postal receipt returned from it.  The foregoing provisions of this Section 12.5 shall not limit the rights of Seller or Buyer to serve process in any other location or any other manner permitted by Applicable Law or to bring any legal action or proceeding or to obtain an attachment or execution of judgment in any competent jurisdiction.

12.6         Broker’s Commission.   The Aircraft is being sold without involvement of a broker.  Should any Person assert any claim against Buyer or Seller for fees or commissions by reason of any alleged employment to act as a broker for Seller or Buyer in regard to this transaction, the party for which said Person claims to have acted shall defend, indemnify, and hold harmless the other party from and against all claims, demands, liabilities, damages, losses, judgments and expenses of every kind (including, without limitation, reasonable attorneys’ fees and expenses) incurred by, arising out of or relating to such claim.

12.7         Confidentiality.     Neither Seller nor Buyer shall, without the other’s prior written consent (which consent will not be unreasonably withheld), communicate or disclose the terms of this Agreement or the other Operative Documents, or the transactions contemplated hereby or thereby, or any information or documents furnished pursuant hereto or thereto (“Confidential Information”) to any third party (except to the extent that the same are within the public domain through no fault of Seller or Buyer), other than to:

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(a)           the respective legal and financial advisers, auditors, or insurance brokers or underwriters of Seller or Buyer;

(b)           in the case of Buyer, its technical inspectors/advisers and appraisers, but only to the extent necessary for such technical inspectors/advisers and appraisers to conduct the inspections expressly contemplated by this Agreement;

(c)           in the case of Buyer, Buyer’s financing source (and its legal advisors) in order to obtain any necessary financing for the purchase of the Aircraft;

(d)           the Manufacturer of the Aircraft or the Engine Manufacturer of the Engines, and their respective legal advisors, but only to the extent necessary to facilitate the transactions and inspections contemplated hereby or by the other Operative Documents;

(e)           the Affiliates of Seller and Buyer;

(f)            the extent required by generally accepted accounting principles, by Applicable Law, by any procedure for discovery of documents in any proceedings before any court, pursuant to any order of a court or other Government Entity, or in connection with any litigation relating to the transactions contemplated by this Agreement or the other Operative Documents.

Buyer and Seller each acknowledge that it shall bear the responsibility for any unauthorized disclosure of any Confidential Information by a third party to whom it has supplied Confidential Information.

12.9         Further Assurances.   At the request of Buyer or Seller, the other party shall promptly and duly execute and deliver to the requesting party such documents and assurances and take such further action as the requesting party may from time to time reasonably request in order to more effectively carry out the intent and purpose of this Agreement and the other Operative Documents and to establish and protect the rights, interests and remedies created or intended to be created in favor of the parties hereunder and under the other Operative Documents.

12.10       Counterparts; Facsimile Execution.   This Agreement may be executed in one or more counterparts, each of which shall constitute one and the same instrument.  Delivery of an executed counterpart of this Agreement by facsimile shall be equally as effective as delivery of a manually executed counterpart.  Any party hereto delivering an executed counterpart hereof by facsimile shall also deliver a manually executed counterpart, but the failure to so deliver a manually executed counterpart shall not affect the validity, enforceability, or binding nature hereof.

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12.11       Expenses.              Seller and Buyer shall each bear its own costs and expenses in connection with the negotiation, execution, and delivery of this Agreement and the other Operative Documents and the sale of the Aircraft and the other transactions contemplated by this Agreement.

The prevailing party in any action or proceeding between Seller and Buyer to enforce the terms of this Agreement shall be entitled to recover from the other party all its costs and expenses, including reasonable attorneys’ fees, incurred by such prevailing party in such action or proceeding.

12.12       Severability of Provisions. Any provision of this Agreement which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction and to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

12.13       Survival.   All warranties, representations and agreements of Seller and Buyer herein or in the other Operative Documents shall survive the execution and delivery of this Agreement and the Closing of the Aircraft.

12.14       No Waiver of Enforcement.   Any failure at any time of any Seller or Buyer to enforce any provision hereof or of any other Operative Document shall not constitute a waiver of such provisions or prejudice the right of either party to enforce such provision at any subsequent time.

12.15       Airworthiness Directives, Etc. Cost Sharing.  For the avoidance of doubt, Seller and Buyer hereby confirm that Seller shall not have any obligation to make any payment to Buyer pursuant to Article 6(d) of the Lease.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Purchase Agreement to be executed by their respective duly authorized officer as of the date first set forth above.

AWMS I, Seller

By:

Title:

HAWAIIAN AIRLINES, INC., Buyer

By:

Title:

By:

Title:

Signature Page to Purchase Agreement (28139)

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EX-10.49

Exhibit 10.49

LOAN AGREEMENT [28139]

DATED AS OF DECEMBER 21, 2006

AMONG

HAWAIIAN AIRLINES, INC.,
As Borrower

C.I.T. LEASING CORPORATION,
as Administrative Agent and
as Original Lender,

C.I.T. LEASING CORPORATION,
as Security Agent

AND

THE LENDERS
FROM TIME TO TIME PARTY HERETO

Table of Contents

	Page
Article I  The Loan	1
Section 1.1.  The Loan	1
Section 1.2.  Making the Loan	3
Section 1.3.  Commitment Termination	3
Section 1.4.  Substitute Lenders	3
Section 1.5.  Special Provisions Governing the Loan	4
Section 1.6.  Payments and Computations	6
Section 1.7.  Sharing of Payments, Etc.	6
Section 1.8.  Secured Obligation of Lenders to Mitigate	7
Article II  Interest	7
Section 2.1.  Rate of Interest	7
Section 2.2.  Interest Periods	7
Section 2.3.  Interest Payments	7
Section 2.4.  Default Rate	8
Section 2.5.  Computation of Interest	8
Section 2.6.  Maximum Rate	8
Article III  Representations and Warranties	8
Section 3.1.  Representations and Warranties	8
(a) Organization; Powers	8
(b) Authorization; Enforceability	8
(c) No Violation	9
(d) Governmental Approvals	9
(e) Litigation	9
(f)  Financial Condition	9
(g) No Default	10
(h) Investment and Holding Company Status	10
(i) Use of Proceeds	10
(j) Licenses, Permits, etc.	10
(k) Compliance with Laws	10
(l) Tax Returns	10
(m) Information	10
Section 3.2. The Aircraft	11
(a) Good Title	11
(b) Filings	11
(c) No Event of Loss	11
(d) Section 1110	11
(e) Condition	11
Section 3.3.  Representations and Warranties of the Lenders	11

i

Article IV  Covenants	12
Section 4.1.Covenants of the Borrower	12
(a)  Financial Statements and Other Information	12
(b)  Existence; Conduct of Business	13
(c)  Mergers and Consolidations	13
(d)  Delivery of Post-Recording FAA Opinion and Post-Registration IR Opinion	15
(e)  Compliance with the Security Agreement	15
(f)  Notice of Default under PBH Agreement	15
Article V  Increased Costs; General Indemnity	15
Section 5.1.  Increased Costs	15
Section 5.2.  Capital Adequacy	16
Section 5.3.  Withholding of Taxes	17
(a)  Payments to Be Free and Clear	17
(b)  Grossing-up of Payments	17
(c)  Evidence of Exemption from U.S. Withholding Tax	18
Section 5.4.       (a)   Other Taxes	20
(b)   Contest of Tax Claims	20
(c)   Non-Parties	22
Section 5.5.   Indemnity	22
Article VI  Conditions Precedent	24
Section 6.1.  General Conditions	24
Article VII  Events of Default	26
Section 7.1.  Events of Default	26
Article VIII  The Security Agent and the Administrative Agent	28
Section 8.1.  Appointment and Authorization	28
Section 8.2.  Delegation of Duties	28
Section 8.3.  Exculpatory Provisions	29
Section 8.4.  Reliance by Agents	29
Section 8.5.  Notice of Events of Default	29
Section 8.6.  Non-Reliance on Agents and Other Lenders; Lender Representations	29
Section 8.7.  Agents and Affiliates	30
Section 8.8.  Indemnification	30
Section 8.9.  Successor Agents	30

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ARTICLE IX  Miscellaneous	30
Section 9.1.  Amendments	30
Section 9.2.  Notices	31
Section 9.3.  Costs and Expenses	31
Section 9.4.  Certain Agreements	31
Section 9.5.  Entire Agreement	32
Section 9.6.  Cumulative Rights and Severability	32
Section 9.7.  Waivers	32
Section 9.8.  Successors and Assigns; Participations; Assignments	32
(a)  Successors and Assigns	32
(b)  Participations	32
(c)  Assignments	33
(d)  Note Register	33
Section 9.9.    Confidentiality	34
Section 9.10.  Counterparts	34
Section 9.11.  Governing Law; Submission to Jurisdiction; Venue	34
Section 9.12.  Waiver of Trial by Jury	35
Section 9.13.  Headings	35

Schedule 1            Definitions

Exhibit A	Form of Security Agreement
Exhibit B	Form of Promissory Note
Exhibit C	Form of Notice of Borrowing
Exhibit D	Form of Opinion of Special Counsel to the Borrower for Closing
Exhibit E	Form of Opinion of Borrower’s In-House Legal Counsel for Closing
Exhibit F	Form of Transfer Supplement
Exhibit G	Form of Certificate of Non-Bank Status
Exhibit H	Form of FAA Counsel’s Opinion
Exhibit I	Form of Special Regulatory Counsel Opinion

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LOAN AGREEMENT [28139]

THIS LOAN AGREEMENT [28139], dated as of December 21, 2006 (as the same may be amended, modified or supplemented from time to time, this “Agreement”), is among HAWAIIAN AIRLINES, INC., a Delaware corporation, as borrower (the “Borrower”), C.I.T. LEASING CORPORATION, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”) and as original lender (in such capacity, the “Original Lender”), C.I.T. LEASING CORPORATION, as the security agent (the “Security Agent”), and such other lenders as may from time to time be party hereto (together with the Original Lender, the “Lenders”).  Certain capitalized terms used herein are defined, and certain rules of construction are specified, in Schedule 1.

BACKGROUND

l.              The Lenders have agreed to make a loan to the Borrower to be secured by a Lien on a certain aircraft and related property owned by the Borrower.

2.             In connection with such loan, the parties hereto wish to enter into certain related understandings, as set forth herein.

The parties hereto agree as follows:

ARTICLE I

THE LOAN

Section 1.1.The Loan.

(a)           Commitments.  Subject to the terms and conditions of this Loan Agreement, on the Funding Date the Original Lender shall make a loan to the Borrower in the principal amount equal to the Commitment.  As evidence of the loan advanced by the Original Lender, on the Funding Date the Borrower shall issue and deliver to the Original Lender, as provided hereunder, a Note payable to the Original Lender in an original principal amount equal to the amount of its Commitment.  The Note shall be substantially in the form set forth in Exhibit B.

(b)           The Notes:  Amortization.  The Loan, as evidenced by each Note, shall mature on the Maturity Date, and the principal of the Loan, as evidenced by each Note, shall be payable in 84 consecutive monthly installments on the Payment Dates, each such installment to be in the amount set forth in Annex A to such Note opposite the Payment Date on which such installment is due.  Annex A to each Note shall be completed based on a mortgage style amortization based on the Interest Rate applicable on the Funding Date, and shall include a balloon payment on the Maturity Date in the amount of Seventeen Million Dollars ($17,000,000), which is forty point five percent (40.5%) of the original principal amount of the Loan.  Each payment of the principal amount, if any, and interest or other amounts due in respect of the Loan shall be applied, first, to the payment of any amounts due in respect of the Loan (other than principal and accrued interest on the Loan) to the date of such payment; second, to the payment of accrued interest on the Loan then due (including any interest on overdue principal amount, and to the extent permitted by law, interest and other amounts thereunder); and third, the balance, if any, remaining thereafter, to the payment of the principal amount of the Loan remaining unpaid (provided that the Loan shall not be subject to prepayment, except as provided in Sections 1.1(c), 1.1(d) and 1.5 hereof).

(c)           Optional Prepayment.

(i)           In General.  On any Business Day (a “Prepayment Date”), on not less than three (3) Business Days’ prior irrevocable written notice from the Borrower to the Administrative Agent, the Borrower may prepay all, of the outstanding principal amount of the Loan.  If the Borrower elects to prepay the Loan, the Borrower shall pay on the Prepayment Date to the Administrative Agent the outstanding principal amount of the Loan subject to prepayment together with all accrued and unpaid interest thereon, the Prepayment Fee (if applicable), and all other amounts then due and payable under the Transaction Documents.  For the avoidance of doubt if prepayment is made on or prior to the first anniversary of the Funding Date, the Prepayment Fee shall be payable together with such prepayment.

(ii)          Limited Optional Prepayment.  Notwithstanding anything to the contrary in Section 1.1(c)(i) above and without limiting the Borrower’s obligations under Sections 5.1, 5.2, 5.3, and 5.4 in the event that the Borrower receives notice from any Lender of any costs or other amounts that the Borrower is required to pay to such Lender pursuant to any of Sections 5.1, 5.2, 5.3 or 5.4, the Borrower and such Lender shall negotiate in good faith in order to arrive at a mutually acceptable alternative means of restructuring the Loan Amount held by such Lender in order to mitigate, minimize or eliminate such costs in the future.  In the event that the Borrower and such Lender are not able to agree, within thirty (30) days following the date of the notice to the Borrower of amounts due under any of Sections 5.1, 5.2, 5.3 or 5.4, as the case may be, on an alternative means of restructuring the Loan Amount held by such Lender, then the Borrower shall have the right, exercisable upon not less than three (3) Business Days’ prior notice to the applicable Lender (with a copy to the Administrative Agent), to prepay in full the Loan Amount held by such Lender, together with accrued interest thereon, and any amounts due to such Lender pursuant to Sections 5.1, 5.2, 5.3 or 5.4, as applicable.  Any prepayment by the Borrower pursuant to this Section 1.1(c)(ii) shall be made by the Borrower directly to the Administrative Agent for the benefit of the applicable Lender, and no prepayment by the Borrower pursuant to this Section 1.1(c)(ii) shall have any effect on the Borrower’s obligations with respect to the remaining outstanding balance of the Loan to any of the other Lenders hereunder.  For the avoidance of doubt such prepayment shall not be subject to any Prepayment Fee.

(d)           Mandatory Prepayment.  If an Event of Loss occurs with respect to the Airframe, the Borrower shall, on the date specified for payment with respect to such Event of Loss in Section 5.01 of the Security Agreement (the “Loss Payment Date”), prepay the outstanding principal amount of the Loan in full, together with accrued interest thereon to the date of such prepayment.  For the avoidance of doubt such prepayment shall not be subject to any Prepayment Fee.

(e)           Pro Rata Treatment.  Except to the extent otherwise provided herein (including, but not limited to, as otherwise specified in Section 1.1(c)(ii) above and Section 1.4 below):  (a) the borrowing of the Loan from the Lenders under Section 1.2 shall be made from the Lenders pro rata according to the amounts of their respective Commitments; (b) each payment or prepayment of principal of the Loan shall be made for account of the Lenders pro rata in accordance with the respective unpaid principal amounts of the Loan held by them (as evidenced by the Notes held by them); and (c) each payment of interest on the Loan shall be made for account of the Lenders pro rata in accordance with the amounts of interest on the Loan then due and payable to the Lenders.

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Section 1.2.Making the Loan.

(a)           The Loan shall be requested by the delivery of a Notice of Borrowing in the form of Exhibit C by the Borrower to the Administrative Agent not later than 4:00 p.m. (New York City time) at least one (1) Business Day prior to the Funding Date specified in such notice.  The Administrative Agent shall give to each Lender prompt notice thereof.  The Notice of Borrowing shall be irrevocable and binding on the Borrower.  The Notice of Borrowing shall be in writing specifying therein the (i) the aggregate amount of the Loan to be funded, (ii) the proposed Funding Date and (iii) payment instructions.  The Original Lender shall, before 10:00 a.m. (New York City time) on the scheduled Funding Date, make available for the account of its Lending Office to the Administrative Agent’s Account, in immediately available funds, the Commitment.  After the Administrative Agent’s receipt of such funds and upon fulfillment of the applicable conditions set forth in Article VI as confirmed during a closing conference call pursuant to which the Administrative Agent or its counsel shall indicate such fulfillment, the Administrative Agent shall transfer such funds to the Borrower at such account (including an account of the Seller) as is specified in a written notice given by the Borrower to the Administrative Agent.

(b)           If for any reason a Closing is not consummated on the Funding Date set forth in the Notice of Borrowing, the Borrower may, by written notice to the Administrative Agent given by 5:00 p.m., New York City time on the scheduled Funding Date, designate a delayed Funding Date for such Closing on or prior to the Commitment Termination Date.

Section 1.3.           Commitment Termination.  The Aggregate Commitment and the Commitment of each Lender shall terminate on the earlier of (i) the making of the Loan pursuant to Section 1.2(a) above, or (ii) at 5:00 p.m. (New York time) on the Commitment Termination Date.

Section 1.4.           Substitute Lenders.  In the event the Borrower is required under the provisions of Sections 5.1, 5.2, 5.3 or 5.4 to make payments to any Lender, a notice has been given to the Borrower under Section 1.5(e) and the Borrower and a Lender are unable to agree on a Substitute Basis or an Affected Lender has given notice to the Borrower under Section 1.5(b) and the Borrower and the Affected Lender are unable to agree on a Substitute Basis, the Borrower may, so long as no Potential Default or Event of Default shall have occurred and be continuing, elect to terminate such Lender (or Affected Lender) as a party to this Agreement; provided that concurrently with such termination, (i) the Borrower shall pay or cause to be paid to that Lender (or Affected Lender) all principal, interest, and other Secured Obligations (including, without limitation, amounts, if any, owed under Sections 5.1, 5.2, 5.3 or 5.4), but

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excluding any Prepayment Fee, due to such Lender (or Affected Lender) through such date of termination, (ii) another financial institution reasonably satisfactory to the Borrower and the Administrative Agent shall agree, as of such date, to become a Lender for all purposes under this Agreement (whether by assignment or otherwise) and to assume all obligations of the Lender (or Affected Lender) to be terminated as of such date, and (iii) all documents necessary, in the reasonable judgment of the Administrative Agent, to evidence the substitution of such Lender shall have been received and approved by the Administrative Agent as of such date.

Section 1.5.           Special Provisions Governing the Loan.  Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to the Loans as to the matters covered:

(a)           As soon as practicable after 11:00 a.m. (London time) on each Interest Rate Determination Date, the Administrative Agent shall determine the interest rate that shall apply to the Loan and the Notes for the applicable Interest Period in accordance with Section 2.2 (which determination shall be prima facie evidence of such rate) and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Borrower, the Security Trustee and each Lender; provided that failure by the Borrower to pay interest on the Notes in the absence of such notice from the Administrative Agent shall not be deemed an Event of Default until two (2) Business Days after such notice is actually given.

(b)           In the event that on any date the making, maintaining or continuation by any Lender of its Percentage Share of the Loan as evidenced by its Note has become unlawful as a result of compliance by such Lender in good faith with any change that becomes effective after the date hereof in any law, treaty, governmental rule, regulation, guideline or order (whether or not having the force of law), then, and in any such event, such Lender shall be an “Affected Lender” and it shall promptly so notify (by facsimile or by telephone confirmed in writing) the Borrower, the Administrative Agent, and the Security Trustee.  Thereafter (i) the obligation of the Affected Lender to make its Percentage Share of the Loan as evidenced by its Note (if not yet funded) shall be suspended until such notice shall be withdrawn by the Affected Lender, (ii) the Affected Lender’s obligation to maintain its outstanding Loan Amount as evidenced by its Note (the “Affected Loan Amount”) shall be suspended with respect to the Affected Loan Amount until such notice shall be withdrawn by the Affected Lender, and (iii) the parties shall follow the procedures set forth in Section 1.5(d) with respect to the Affected Loan Amount so long as, if following such procedures, the maintaining continuation of such Affected Loan Amount or the balance of the Loan is not unlawful.  The Borrower may elect to terminate such Affected Lender as a party to this Agreement in compliance with Section 1.4.  Except as provided in the immediately preceding sentence, nothing in this Section 1.5(b) shall affect the obligation of any Lender other than an Affected Lender to make its Percentage Share of the Loan or maintain its Loan Amount as evidenced by its Notes in accordance with the terms of this Agreement.

(c)           The Borrower shall compensate each Lender, within ten (10) Business Days after written request by such Lender (which request shall set forth in reasonable detail the basis for requesting such amounts), for all reasonable losses, costs, expenses and liabilities sustained by such Lender in connection with the liquidation or re-employment of funds used by it to make or carry its Loan Amount (collectively, “LIBOR Breakage Costs”) (i) if for any reason (other than a default by that Lender) a borrowing of the Loan does not occur on a date specified therefor in a Notice of Borrowing as set forth in Section 1.2(b) and (ii) as a consequence of any default by the Borrower in the repayment of the Loan when required by the terms of this Agreement.

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(d)           During the thirty (30) days following the date of any notice given to the Borrower pursuant to Section 1.5(b) or 1.5(e), each Affected Lender (or, in the case of Section 1.5(e), each Lender) and the Borrower shall negotiate in good faith in order to arrive at a mutually acceptable alternative basis for determining the interest rate from time to time applicable to the Affected Loan Amount (or, in the case of Section 1.5(e), the Loan) (the “Substitute Basis”), such interest rate to be based on an agreed cost-of-funds benchmark plus the Applicable Margin.  If within the thirty (30) days following the date of any such notice to the Borrower, any Affected Lender (or, in the case of Section 1.5(e), any Lender) and the Borrower shall agree upon a Substitute Basis, such Substitute Basis shall be retroactive to and effective from the first day of the applicable Interest Periods until and including the last day of such Interest Periods.  If after thirty (30) days from the date of such notice, any Affected Lender (or, in the case of Section 1.5(e), any Lender) and the Borrower shall have failed to agree upon a Substitute Basis, then each such Affected Lender (or, in the case of Section 1.5(e), each such Lender) shall certify in writing to the Borrower through the Administrative Agent (such certification to be conclusive and binding on all of the parties hereto absent manifest error) the interest rate at which such Affected Lender (or, in the case of Section 1.5(e), such Lender) is prepared to make or maintain the Affected Loan Amount (or, in the case of Section 1.5(e), its Loan Amount) for such Interest Periods, such interest rate to be retroactive to and effective from the first day of such Interest Periods.  If no Substitute Basis is established, upon receipt of notice of the interest rates at which an Affected Lender (or, in the case of Section 1.5(e), a Lender) is prepared to make or maintain its affected Loans, the Borrower shall have the right (i) exercisable upon five (5) Business Days’ prior notice to such Affected Lender (or such Lender) through the Administrative Agent (A) to continue to borrow the relevant Loan Amount at the interest rates so advised by such Affected Lender (or such Lender) (as such rates may be modified, from time to time, at the outset of each subsequent Interest Period) or (B) to prepay in full the affected Loan Amount of any such Affected Lender (or any such Lender), together with accrued interest thereon at the LIBOR Rate plus the Applicable Margin in effect for the most recent Interest Period and any LIBOR Breakage Costs, but excluding any Prepayment Fee, whereupon such affected Loan Amount shall become due and payable on the date specified by the Borrower in such notice or (ii) to substitute any such Affected Lender (or such Lender) pursuant to the provisions of, and subject to the conditions contained in, Section 1.4.

(e)           In the event that on any Interest Rate Determination Date, by reason of circumstances affecting the interbank Eurodollar market, adequate and fair means do not exist for ascertaining the interest rate applicable to the Loan on the basis provided for in the definition of LIBOR Rate, the Administrative Agent shall on such date give notice (by facsimile or by telephone confirmed in writing) to the Borrower and each Lender of such circumstance, whereupon the relevant provisions of Section 1.5(d) shall be applicable.

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Section 1.6.Payments and Computations.

(a)           The Borrower shall make each payment hereunder and under the Notes not later than 3:00 p.m. (New York City time) on the day when due in Dollars to the Administrative Agent’s Account (or such other account or accounts as the Administrative Agent directs in writing) in immediately available funds, without set-off or counterclaim (except for any required withholding taxes not subject to indemnification hereunder).  Any amounts received after such time may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for the purpose of calculating interest thereon.  Unless funds have been paid directly by the Borrower to each Lender, the Administrative Agent will promptly thereafter but in no event later than 4:00 p.m. (New York City time) on the date such funds are received by the Administrative Agent from the Borrower cause to be distributed like funds to the Lenders for the account of their respective Lending Offices, in each case to be applied in accordance with the terms of this Agreement.  If the payment by the Borrower is received by the Administrative Agent after 3:00 p.m., New York time, at the place of payment, the Administrative Agent shall make payment promptly, but not later than 2:00 p.m. New York time on the next succeeding Business Day.  Upon its acceptance of any Transfer Supplement and recording of the information contained therein in the Register pursuant to Section 9.8(d), from and after the effective date specified in such Transfer Supplement, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder.

(b)           Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or other amounts as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of a Loan to be made in the next following calendar month, such payment shall be made on the next preceding Business Day, and such reduction of time shall be given effect in the computation of the payment of interest hereunder.

Section 1.7.           Sharing of Payments, Etc.  If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Loan owing to it in excess of its proportionate share of payments on account of the Secured Obligations, such Lender shall forthwith purchase from the other Lenders such participation in the applicable Secured Obligations as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender’s proportionate share (according to the proportion of (i) the amount of such Lender’s required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.  The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 1.7 may, to the fullest extent permitted by law, exercise its rights of set-off with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

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Section 1.8.           Obligation of Lenders to Mitigate.  If an event or the existence of a condition occurs that would cause any Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 5.1, 5.2, 5.3 or 5.4, then, upon the request of the Borrower, such Lender will to the extent not inconsistent with any applicable legal or regulatory restrictions, use reasonable efforts (i) to make, fund or maintain the Commitment of such Lender or the Loan Amount of such Lender through another lending office of such Lender or (ii) take such other reasonable measures, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Sections 5.1, 5.2, 5.3 or 5.4 would be reduced and if the making, funding or maintaining of such Commitment or Loan Amount through such other lending office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Commitment or Loan Amount or the interests of such Lender; provided that such Lender will not be obligated to utilize such other lending office pursuant to this Section 1.8 unless the Borrower agrees to pay all incremental expenses, if any, incurred by such Lender as a result of utilizing such other lending office as described in clause (i) above; provided, further, that such Lender shall have no obligation to designate another lending office that does not maintain loans comparable to the Loan.  A certificate as to the amount of any such expenses (setting forth in reasonable detail the basis for requesting such amount and the calculation thereof) submitted by such Lender to the Borrower (with a copy to the Administrative Agent) shall be prima facie evidence of such expenses.

ARTICLE II

INTEREST

Section 2.1.           Rate of Interest.  Subject to Section 1.5 hereof, each Note shall bear interest on the unpaid principal amount thereof for each Interest Period from the date made through maturity (whether by acceleration or otherwise) at a rate equal to the sum of the LIBOR Rate for such Interest Period plus the Applicable Margin (the “Interest Rate”).  The applicable Interest Period for determining the rate of interest shall be established in accordance with Section 2.2.

Section 2.2.           Interest Periods.  The first Interest Period shall be the period commencing on the Funding Date, and shall end on, but shall exclude, the next Interest Payment Date, and thereafter each successive Interest Period shall commence on (and shall include) the last day of the next preceding Interest Period and shall end on (but shall exclude) the next succeeding Interest Payment Date, provided, however, that notwithstanding anything in this Agreement to the contrary, the final Interest Period shall end on the Maturity Date; provided, further, however, that if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, except that, notwithstanding anything to the contrary contained herein, if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day.

Section 2.3.           Interest Payments.  Accrued interest on the Loan and each Note shall be payable in arrears on the last day of each Interest Period; provided, that (i) interest accrued pursuant to Section 2.4 shall be payable on demand and (ii) in the event of any repayment or prepayment of the Loan and any Note (or any portion thereof), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment.

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Section 2.4.           Default Rate.  Notwithstanding Section 2.1, the Borrower shall pay the Lenders and the Administrative Agent on demand interest on any principal, interest, fee or other amount not paid hereunder, under any Note or under any other Transaction Document when due at a rate per annum that is two percent (2%) per annum in excess of the LIBOR Rate for the relevant Interest Period plus the Applicable Margin (the “Default Rate”).

Section 2.5.           Computation of Interest.  Interest on the Notes shall be computed on the basis of a 360-day year and the actual number of days elapsed in the period during which such amount accrues.  In computing such amounts, the first day of the applicable period shall be included, and the last day of the applicable period shall be excluded; provided that if the Loan or a Note (or any portion thereof) is repaid on the same day on which it is made, one day’s interest shall be paid on that Note or the relevant portion thereof.

Section 2.6.           Maximum Rate.  Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to the Loan or any Note, together with all fees, charges and other amounts which are treated as interest on the Loan or such Note under applicable law (collectively the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding the Loan or the relevant portion thereof in accordance with applicable law, the rate of interest payable in respect of the Loan or such Note or the relevant portion thereof hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of the Loan or such Note or the relevant portion thereof but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the LIBOR Rate to the date of repayment, shall have been received by such Lender.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

Section 3.1.           Representations and Warranties.  The Borrower represents and warrants to the Administrative Agent and each Lender as of the date of this Agreement that:

(a)           Organization; Powers.  The Borrower is duly incorporated, validly existing and in good standing under the laws of Delaware, has all requisite corporate power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Change, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.  The Borrower is “situated in a Contracting State” within the meaning and for the purposes of Article 3(1) of the Consolidated Text.

(b)           Authorization; Enforceability.  The execution and delivery of the Transaction Documents by the Borrower and the performance by the Borrower of its obligations thereunder are within the Borrower’s corporate powers, have been duly authorized by all necessary corporate action of Borrower and do not require any stockholder approval, or approval or consent of any trustee or holder of indebtedness or obligations of the Borrower except such as have been duly

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obtained.  This Agreement has been duly executed and delivered by the Borrower and the other Transaction Documents will be duly executed and delivered by the Borrower when required by this Agreement.  This Agreement constitutes, and each of the other Transaction Documents when executed and delivered by the Borrower will constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c)           No Violation.  The execution and delivery by the Borrower of the Transaction Documents and the performance by the Borrower of its obligations thereunder do not and will not (i) violate any provision of the Certificate of Incorporation or By-Laws of the Borrower, (ii) violate any provision of foreign, federal, state or local law applicable to or binding on the Borrower or (iii) violate or constitute any default under, or result in the creation of any Lien (other than as permitted under the Security Agreement) upon the Aircraft, the Airframe or any Engine under, any indenture, deed of trust, conditional sales contract, lease, loan or other material agreement, instrument or document to which the Borrower is party or by which the Borrower or any of its properties is bound, except for the lease of the Aircraft by the Seller to the Borrower which shall be terminated upon the Closing.

(d)           Governmental Approvals.  The execution and delivery by the Borrower of the Transaction Documents and the performance by the Borrower of its obligations thereunder do not and will not require the consent or approval of, or the giving of notice to, or the registration with, or the recording or filing of any documents with, or the taking of any other action in respect of, any Governmental Authority, other than (i) the filings, recordings, notices and other ministerial actions pursuant to any routine recording, and contractual or regulatory requirements applicable to it, each of which has been effected or obtained, and (ii) the filings described in Section 3.2(b).

(e)           Litigation.  Except as set forth in Holdings’ Annual Report on Form 10-K for 2005 (as amended through the Funding Date), or in any Quarterly Report on Form 10-Q or Current Report on Form 8-K filed by Holdings with the SEC subsequent to such Form 10-K (in each case as amended through the Funding Date), no action, claim or proceeding is now pending or, to the Actual Knowledge of the Borrower, threatened against the Borrower before any court, governmental body, arbitration board, tribunal or administrative agency which, if determined adversely to the Borrower, would be expected to result in a Material Adverse Change.

(f)            Financial Condition.  The audited consolidated (from and after June 2, 2005) balance sheet of Holdings and the Borrower with respect to its most recent fiscal year included in its Annual Report on Form 10-K for 2005 (as amended through the Funding Date) filed by Holdings with the SEC, and the related consolidated (from and after June 2, 2005) statements of operations and cash flows for the year then ended have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of Holdings and its consolidated Subsidiaries (including the Borrower) as of such date and the results of its operations and cash flows for such period.  The consolidated balance sheet of Holdings and the Borrower as of June 30, 2006 included in Holdings’ Quarterly Report on Form 10-Q for the period ended June 30, 2006, and the related consolidated statement of operations and cash flows for the three months

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then ended have been prepared in accordance with GAAP (subject to normal year-end adjustments) and fairly present in all material respects the financial condition of Holdings and its consolidated Subsidiaries (including the Borrower) as of such date and the results of its operations and cash flows for such period.

(g)           No Default.  No Event of Default or Potential Default has occurred and is continuing.

(h)           Investment and Holding Company Status.  The Borrower is not (i) an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940 or (ii) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935.

(i)            Use of Proceeds.  No part of the proceeds of the Loan will be used, whether directly or indirectly, for any purpose that entails a violation of Regulations U or X of the Board of Governors of the Federal Reserve System.

(j)            Licenses, Permits, etc.  The Borrower is a U.S. Air Carrier and holds all licenses, permits and franchises from the appropriate Governmental Authorities necessary to authorize the Borrower to lawfully engage in air transportation and to carry on scheduled commercial passenger service as currently conducted, except where the failure to so hold any such license, permit or franchise would not be expected to give rise to a Material Adverse Change.

(k)           Compliance with Laws.  Each of the Borrower and its Subsidiaries is in compliance with all laws, regulations and orders of any governmental or regulatory authority or agency applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Change.

(l)            Tax Returns.  The Borrower and its Subsidiaries have timely filed all Federal income tax returns and all other material tax returns that are required to be filed by them and have paid all Taxes that are material in amount shown to be due pursuant to such returns or pursuant to any assessment received by the Borrower or any of its Subsidiaries, other than any such assessment that is being contested in good faith through appropriate proceedings and against which adequate reserves are being maintained and the nonpayment of which (individually or in the aggregate) could not reasonably be expected to cause a material impairment of the ability of the Borrower to perform, or the Administrative Agent, the Security Agent or the Lenders to enforce, the obligations of the Borrower under the Transaction Documents.  The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes and other governmental charges are, in the opinion of the Borrower, adequate.

(m)          Information.  Holdings’ Annual Report on Form 10-K for 2005 filed with the SEC and each of Holdings’ Quarterly Reports on Form 10-Q and Current Reports on Form 8-K subsequently filed by Holdings with the SEC, as of the date it was filed with the SEC (or, if such report has been amended, in each case as amended through the Funding Date), did not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

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(n)           ERISA.     All the qualified retirement plans of the Borrower and its Affiliates are in compliance with the minimum funding requirements of ERISA and the Internal Revenue Code.

Section 3.2.           The Aircraft.  The Borrower represents and warrants to the Administrative Agent and each Lender, as of the Funding Date and on and after giving effect to the Closing (in the case of Section 3.2(a)), that:

(a)           Good Title.  The Borrower has good title to the Aircraft free and clear of Liens other than Permitted Liens.

(b)           Filings.  Except for (i) the registration of the Aircraft in the name of the Borrower with the FAA pursuant to the Federal Aviation Act, (ii) the filing with the FAA pursuant to the FAA Regulations of an AC Form 8050-135 with respect to the sale under the Warranty Bill of Sale and the international interests (or prospective international interests) under the Cape Town Convention in the Airframe and the procurement of an authorization code in respect thereof, (iii) the filing for recording (and the recording) pursuant to the Federal Aviation Act of the FAA Bill of Sale and the Security Agreement covering the Aircraft, (iv) the registration with the International Registry of the sale under the Warranty Bill of Sale and the international interests (or prospective international interests) in the Airframe and Engines created by the Transaction Documents and (v) the filing of financing statements (and continuation statements at periodic intervals) with respect to the security interests created by the Transaction Documents with the Secretary of State of Delaware, no further action, including any filing or recording of any document (including any financing statement in respect thereof under Article 9 of the Uniform Commercial Code of any applicable jurisdiction), is necessary in order to establish and perfect the first priority Lien on the Aircraft in favor of the Security Agent pursuant to the Security Agreement in any applicable jurisdiction in the United States.

(c)           No Event of Loss.  No Event of Loss has occurred with respect to the Aircraft or any Engine, and no circumstance, condition, act or event has occurred that, with the giving of notice or lapse of time or both gives rise to or constitutes an Event of Loss with respect to the Aircraft or any Engine.

(d)           Section 1110.  The Security Agent is entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the Aircraft as provided in the Security Agreement in the event of a case under Chapter 11 of the Bankruptcy Code in which Borrower is a debtor.

(e)           Condition.  The Aircraft has been duly certified by the FAA as to type and airworthiness, has been insured by the Borrower in accordance with the terms of the Security Agreement, and is in the condition and state of repair required under the terms of the Security Agreement.

Section 3.3            Representations and Warranties of the Lenders.  Each Lender represents and warrants as of the date hereof that:

(a)           it has not sold, transferred, or assigned all of any part of its rights and obligations under this Agreement and the Loan to any Person except as provided in Section 9.8 hereof; and

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(b)           no part of the funds used by it to acquire its Notes constitute the assets of any Plan.  As used herein, “Plan” means an “employee benefit plan (as such term is defined in Section 3(3) of ERISA) or any “plan” (as such term is defined in Section 4975(e)(1) of the Code) which has been established or maintained or contributed to by such Lender or an Affiliate that, together with such Lender, is treated as a single employer under Section 414(b), (c) or (m) of the Code; and

ARTICLE IV

COVENANTS

Section 4.1.           Covenants of the Borrower.  The Borrower shall comply with the following covenants and agreements, unless the Required Lenders shall otherwise consent:

(a)           Financial Statements and Other Information.  The Borrower will furnish to the Administrative Agent and each Lender:

(i)            within one hundred twenty (120) days after the end of each fiscal year of the Borrower, a copy of the Form 10-K (excluding exhibits) filed by Holdings with the SEC for such fiscal year (or in lieu of such copy an e-mail notice that such report has been filed with the SEC and providing a web site address at which such report may be accessed, provided that such e-mail notice will satisfy this requirement only if such report is in fact accessible at such web site address), or, if no such Form 10-K was so filed, its audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Holdings’ independent public accountants of recognized national standing to the effect that such consolidated financial statements present fairly in all material respects the consolidated financial condition and results of operations of Holdings and its Subsidiaries (including the Borrower) on a consolidated basis in accordance with GAAP;

(ii)           within sixty (60) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, a copy of the Form 10-Q (excluding exhibits) filed by Holdings with the SEC for such quarterly period (or in lieu of such copy an e-mail notice that such report has been filed with the SEC and providing a web site address at which such report may be accessed, provided that such e-mail notice will satisfy this requirement only if such report is in fact accessible at such web site address), or if no such Form 10-Q was so filed, its consolidated balance sheet and related statements of operations and cash flows as of the end of and for such fiscal quarter (in the case of the statement of operations) and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, prepared in accordance with GAAP, subject to normal year-end audit adjustments; and

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(iii)        promptly following any request therefor, such other nonconfidential information regarding the Aircraft, the operations, business affairs and financial condition of the Borrower, or compliance with the terms of the Transaction Documents, as the Administrative Agent may reasonably request.

(b)        Existence; Conduct of Business.  The Borrower will, and will cause each of its Subsidiaries to:

(i)          do or cause to be done all things necessary to preserve and maintain its legal existence; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 4.1(c); provided further that this Section 4.1(b)(i) shall apply to the Subsidiaries of Borrower, if any, only to the extent that the dissolution, termination or other loss of legal existence of such Subsidiaries would reasonably be expected to (either individually or in the aggregate) cause a material impairment of the ability of the Borrower to perform, or the Security Agent, the Administrative Agent or the Lenders to enforce, the obligations of the Borrower under the Transaction Documents.

(ii)         comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would reasonably be expected to (either individually or in the aggregate) cause a material impairment of the ability of the Borrower to perform, or the Security Agent, the Administrative Agent or the Lenders to enforce, the obligations of the Borrower under the Transaction Documents;

(iii)        pay and discharge all Taxes imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such Taxes the payment of which are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained, and the nonpayment of which (either individually or in the aggregate) could reasonably be expected to cause a material impairment of the ability of the Borrower to perform, or the Security Agent, the Administrative Agent or the Lenders to enforce, the obligations of the Borrower under the Transaction Documents; and

(iv)       permit representatives of any Lender, during normal business hours and on reasonable notice, to discuss its business and affairs and that of its Subsidiaries with the Borrower’s officers, all to the extent reasonably requested by such Lender.

(c)         Mergers and Consolidations.  The Borrower will not consolidate with or merge into any other Person or convey, transfer or lease all or substantially all of its assets as an entirety to any Person unless:

(x)        if the Borrower is not the surviving Person,

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(i)          the Person formed by such consolidation or into which the Borrower is merged or the Person which acquires by conveyance, transfer or lease substantially all of the assets of the Borrower as an entirety shall be a U.S. Air Carrier;

(ii)         the Person formed by such consolidation or into which the Borrower is merged or the Person which acquires by conveyance, transfer or lease substantially all of the assets of the Borrower as an entirety shall execute and deliver to the Security Agent a duly authorized, valid, binding and enforceable agreement, in form and substance reasonably satisfactory to the Security Agent, the Administrative Agent and the Lenders, containing an assumption by such Person of the due and punctual performance and observance of each covenant and condition of the Transaction Documents to be performed or observed by the Borrower;

(iii)        immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing;

(iv)       all filings and registrations shall have been made as shall be necessary to preserve the perfection of the Lien of the Security Agreement on the Aircraft on a first priority and perfected basis (subject to Permitted Liens); and

(v)        promptly after the consummation of such transaction, the Borrower shall deliver to the Security Agent a certificate of the Secretary or an Assistant Secretary of Borrower certifying as to Borrower’s compliance with the conditions of this Section 4.1(c) and an opinion of Borrower’s Legal Department or its outside counsel as to Borrower’s compliance with Sections 4.1(c)(i), 4.l(c)(ii) and 4.1(c)(iv, and

(y)        if the Borrower is the surviving Person, immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing..

Upon any consolidation or merger, or any conveyance, transfer or lease of all or substantially all of the assets of the Borrower as an entirety in accordance with this Section 4.1(c), the Person formed by such consolidation or into which the Borrower is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Borrower under this Agreement and the other Transaction Documents with the same effect as if such Person had been named as the Borrower herein.  No such conveyance, transfer or lease of all or substantially all of the assets of the Borrower as an entirety shall have the effect of releasing the Borrower or any Person which shall theretofore have become such in the manner prescribed in this Section 4.1(c) from the Borrower’s liability in respect of any Transaction Document to which it is a party.

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(d)           Delivery of Post-Recording FAA Opinion and Post-Registration IR Opinion.  Promptly upon the recording of the FAA Bill of Sale and the Security Agreement covering the Aircraft pursuant to the Federal Aviation Act and the registration with the International Registry of the international interests in the Airframe and Engines created by the Security Agreement, the Borrower will cause special FAA counsel in Oklahoma City, Oklahoma, to deliver to the Security Agent, the Administrative Agent and each Lender and the Borrower an opinion as to the due and valid registration of the Aircraft by the FAA in the name of the Borrower, the due recording of the Security Agreement and the lack of filing of any intervening documents with respect to the Aircraft at the FAA, and the valid registration of the international interests in the Airframe and Engines created by the Security Agreement with the International Registry.

(e)           Compliance with the Security Agreement.  The Borrower will comply with the terms and provisions of the Security Agreement.

(f)            Notice of Default under PBH Agreement.  The Borrower agrees to use its best efforts to provide notice to the Administrative Agent of an event of default under and as defined in the PBH Agreement promptly after receiving Actual Knowledge thereof.

ARTICLE V

INCREASED COSTS; GENERAL INDEMNITY

Section 5.1.           Increased Costs.  The Borrower shall pay to each Lender (through the Administrative Agent) from time to time, within ten (10) Business Days after demand therefor, such additional amount or amounts as may be necessary to compensate such Lender on a net After-Tax Basis for any increased costs incurred by such Lender which are attributable to its making or maintaining its Percentage Share or its Ratable Share of the Loan hereunder, or any reduction in any amount receivable by such Lender under this Agreement in respect of the Loan (such increases in costs and reductions in amounts receivable being herein called “Additional Costs”), resulting from any change after the date hereof in U.S. federal, state, municipal, or foreign or supranational laws or regulations (including Regulation D of the Board of Governors of the Federal Reserve System), or the adoption or making after the date hereof of any interpretations, directives, or requirements applying to a class of banks including such Lender under any U.S. federal, state, municipal, or any foreign laws or regulations (whether or not having the force of law) by any court, central bank or monetary authority charged with the interpretation or administration thereof (a “Regulatory Change”), which imposes or modifies any reserve, special deposit, compulsory loan or similar requirements relating to any extensions of credit or other assets of, or any deposits with other liabilities of, such Lender (including its Percentage Share or its Ratable Share of the Loan or any deposits referred to in the definition of LIBOR Rate or related definitions) which is not otherwise included in the determination of the applicable interest rate hereunder.

Each Lender will notify the Borrower of any event occurring after the date of this Agreement that will entitle such Lender to compensation pursuant to this Section 5.1 as promptly as practicable, but in any event within sixty (60) days, after such Lender obtains Actual Knowledge thereof; provided, however, that such Lender shall be entitled to payment under this Section 5.1 only for costs incurred from and after the date sixty (60) days prior to the date that such Lender makes demand therefor; provided, further that no compensation shall be payable by the Borrower to any Lender pursuant to this Section 5.1 unless such Lender certifies to the

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Borrower that (x) such Lender is assessing to its other borrowers (of loans similar to the Loans) comparable allocable costs, and (y) such Lender believes that such costs are generally applicable to lenders similarly situated to and in the same jurisdiction as such Lender.  Such notice shall describe in reasonable detail the calculation of the amounts owed under this Section.  Determinations by a Lender for purposes of this Section 5.1 of the effect of any Regulatory Change on its costs of making or maintaining its Percentage Share or its Ratable Share of the Loan or on amounts receivable by it in respect of the Loan, and of the additional amounts required to compensate such Lender in respect of any Additional Costs, shall be prima facie evidence of the amount owed under this Section 5.1.

Any assignee of a Lender that is not an initial Lender party to this Loan Agreement shall not be entitled to any greater compensation under this Section 5.1 by reference to the laws and regulations in effect as of the date the transfer or sale than that which would have been payable to the transferor Lender as of the date of the transfer or sale of the Note to such transferee Lender; provided, however, that, if subsequent to the date of transfer or sale of the Note there occurs a Regulatory Change, such transferee Lender shall be entitled to compensation under this Section 5.1 as a result of such Regulatory Change.

Section 5.2.           Capital Adequacy.  If (1) the adoption, after the date of this Loan Agreement, of any applicable governmental law, rule or regulation regarding capital adequacy, (2) any change, after the date of this Loan Agreement, in the interpretation or administration of any such law, rule or regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof or (3) compliance by a Lender or any corporation or bank controlling a Lender with any applicable guideline or request of general applicability, issued after the date of this Loan Agreement, by any central bank or other Governmental Authority (whether or not having the force of law) that constitutes a change of the nature described in clause (2) (“Capital Adequacy Change”), has the effect of (x) requiring an increase in the amount of capital required to be maintained by a Lender or any corporation or bank controlling a Lender or (y) reducing the rate of return on assets or capital of such Lender (or such corporation or bank) and such adoption, change or compliance, as the case may be, relates to a category of claims or assets that includes such Lender’s Loan Amount, the Borrower shall pay to such Lender from time to time such additional amount or amounts as are necessary to compensate such Lender for such portion of such increase or reduction as shall be reasonably allocable to such Lender’s Loan Amount; provided, that no such amounts shall be payable by the Borrower to any Lender pursuant to this Section 5.2 unless such Lender certifies to the Borrower that (A) such Lender is assessing to its other borrowers (of loans similar to the Loan) comparable allocable costs, and (B) such Lender believes that such costs are generally applicable to lenders similarly situated to and in the same jurisdiction as such Lender.  For the avoidance of doubt, the matters set forth in the Consultative Document titled “The New Basel Capital Accord” issued by the Basel Committee on Banking Supervision in April 2003 will not be treated, for purposes of determining whether any Lender is entitled to compensation under this Section 5.2, as having been enacted or having come into effect before the date of this Loan Agreement.

Each Lender will notify the Borrower of any event occurring after the date of this Agreement that will entitle such Lender to compensation pursuant to this Section 5.2 as promptly as practicable but in any event within sixty (60) days, after such Lender obtains Actual Knowledge thereof; provided, however, such Lender shall be entitled to payment under this

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Section 5.2 only for costs incurred from and after the date sixty (60) days prior to the date that such Lender makes demand therefor.  Such notice shall describe in reasonable detail the calculation of the amounts owed under this Section.  Determinations by a Lender for purposes of this Section 5.2 of the effect of any increase in the amount of capital required to be maintained by the bank and of the amount allocable to such Lender’s obligations to the Borrower hereunder shall be prima facie evidence of the amounts owed under this Section.

Any assignee of a Lender that is not the initial Lender party to this Loan Agreement shall not be entitled to any greater compensation under this Section 5.2 by reference to the laws, rules and regulations regarding capital adequacy in effect as of the date of the transfer or sale than that which would have been payable to the transferor Lender as of the date of the transfer or sale of the Note to such transferee Lender; provided, however, that, if subsequent to the date of transfer or sale of the Note there occurs a Capital Adequacy Change, such transferee Lender shall be entitled to compensation under this Section 5.2 as a result of such Capital Adequacy Change.

Section 5.3.Withholding of Taxes.

(a)            Payments to Be Free and Clear.  All sums payable by the Borrower (or by any other Person on account of any obligation of the Borrower) under this Agreement and the other Transaction Documents to or for the benefit of any Lender, the Administrative Agent, the Security Agent or any other Indemnitee shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Taxes.

(b)            Grossing-up of Payments.  If the Borrower or any other Person is required by law to make any deduction or withholding on account of any Tax from any sum paid or payable by the Borrower (or by any other Person on account of any obligation of the Borrower) under any of the Transaction Documents to or for the benefit of any Lender, the Administrative Agent, the Security Agent or any other Indemnitee:

(i)             the Borrower shall pay such Tax before the date on which any interest, addition to Tax or penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Borrower) for its own account or (if that liability is imposed on the Administrative Agent, the Security Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent, the Security Agent or such Lender;

(ii)            in the case of any Tax other than an Excluded Tax, the sum payable by the Borrower (or by any other Person on account of any obligation of the Borrower under the Transaction Documents) in respect of which the relevant deduction, withholding or payment is required shall be increased or supplemented by the Borrower to the extent necessary to ensure that, after the making of that deduction or withholding, the Administrative Agent, the Security Agent, such Lender or such other Indemnitee, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and

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(iii)          as promptly as practicable (and in any event within sixty (60) days) after the payment of the sum from which such deduction or withholding is required by law, the Borrower shall deliver to the Administrative Agent evidence reasonably satisfactory to the affected parties of such deduction or withholding and of the remittance thereof to the relevant taxing or other authority.

Any additional amount payable in respect of Taxes pursuant to clause (ii) above shall be paid on an After-Tax Basis.

(c)           Evidence of Exemption from U.S. Withholding Tax.

(i)            Each Lender that is organized under the laws of a jurisdiction other than the United States or any state or other political subdivision thereof shall, to the extent it is entitled to do so, deliver to the Administrative Agent for transmission to the Borrower, on or prior to the date of the Closing (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Transfer Supplement pursuant to which it becomes a Lender (in the case of each other Lender), (x) two copies of Internal Revenue Service Form W-8BEN or W-8ECI (or applicable successor forms), completed and executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is entitled to an exemption or reduction in the amount of United States federal income tax required to be deducted or withheld from any payments to such Lender of interest, fees or other amounts payable under any of the Transaction Documents or (y) if such Lender is not a “bank” or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form W-8BEN claiming exemption under a treaty or W-8ECI, pursuant to clause (x) above, a Certificate re Non-Bank Status together with two copies of Internal Revenue Service Form W-8BEN (or applicable successor form), completed and executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is entitled to an exemption from, or reduction in the amount of, United States federal income tax required to be withheld from payments to such Lender of interest payable under any of the Transaction Documents.

Each Lender that is organized under the laws of the United States or any state or other political subdivision thereof shall deliver to the Administrative Agent for transmission to the Borrower, at or prior to the Closing (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Transfer Supplement pursuant to which it becomes a Lender (in the case of each other Lender), two copies of Internal Revenue Service Form W-9 (or applicable successor form) completed and executed by such Lender.

(ii)           Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to Section 5.3(c)(i) hereby agrees, from time to time after the initial

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delivery by such Lender of such forms, certificates or other evidence, if reasonably requested in good faith by the Borrower, to the extent such Lender is entitled to do so, to deliver to the Administrative Agent for transmission to the Borrower two new copies of Internal Revenue Service Form W-8BEN or W-8ECI or W-9, or a Certificate re Non-Bank Status and two new copies of Internal Revenue Service Form W-8BEN, as the case may be, completed and executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is entitled to an exemption from, or reduction in the amount of, United States federal income tax required to be withheld from payments to such Lender under the Transaction Documents or (y) notify the Administrative Agent and the Borrower of its inability to deliver any such forms, certificates or other evidence in which case such Lender shall not be required to deliver any such form or certificate pursuant to this Section 5.3(c).

(iii)          The Borrower shall not be required to pay any additional amount to any Lender under clause (ii) of Section 5.3(b) if such Lender shall have failed to satisfy the requirements of clause (i) or (ii)(x) of this Section 5.3(c); provided that if such Lender shall have satisfied the requirements of Section 5.3(c)(i) at or prior to the Closing (in the case of each Lender listed on the signature pages hereof) or on the date of the Transfer Supplement pursuant to which it became a Lender (in the case of each other Lender), nothing in this Section 5.3(c)(iii) shall relieve the Borrower of its obligation to pay any additional amounts pursuant to Section 5.3(b) in the event that, as a result of any written change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof by a Governmental Authority, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in Section 5.3(c)(i) or (ii).

(iv)          If the Borrower pays any additional amount under this Section 5.3 to a Lender and such Lender determines in its sole discretion (exercised in good faith) that it has actually realized in connection therewith a net cash benefit (including a net cash benefit which the relevant taxing authority applies to satisfy any liability of such Lender for Excluded Taxes) due to any refund or any reduction of, or credit against, its liabilities for Excluded Taxes in any taxable year, provided no Event of Default (or an event described in Section 7.1(b) or (f) which, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing, such Lender shall, to the extent it can do so without prejudice to the retention of such benefit, pay to the Borrower an amount that the Lender shall, in its sole discretion, determine (subject to confirmation as provided below) is equal to such net cash benefit which was obtained by the Lender in such year as a consequence of such refund, reduction or credit realized in connection with the payment of such additional amount.  A Lender shall, upon written request from the Borrower, provide to the Borrower a letter from independent accountants selected by the Lender and reasonably acceptable to the Borrower confirming the accuracy of the Lender’s calculations

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of any amount due pursuant to the next-to-last sentence of Section 5.3(b), or the amount of any net benefit determined by Lender pursuant to the preceding sentence, provided that the interpretation of this Agreement or any other Transaction Document shall not be within the scope of the accountants’ confirmation.  Nothing contained in this Section 5.3(c)(iv) shall be construed as requiring any Lender to conduct its business or arrange or alter in any respect its tax or financial affairs so that it is entitled to receive a refund, reduction or credit or shall require any Lender to provide to the Borrower or its agents copies of any tax returns or other information with respect to the Lender’s income, assets or operations. The Borrower shall reimburse each Lender for all costs and expenses incurred by such Lender in obtaining such accountants’ letter, provided that the accountants’ letter confirms, in all material respects, such Lender’s determination.

(v)           The Borrower shall have no obligation to pay to any Lender any additional amount under Section 5.3(b)(ii) or to indemnify any Lender under Section 5.4 for any United States federal income tax or withholding tax which was required by law to be deducted or withheld by the Borrower or the Administrative Agent from any prior payment to or for the benefit of such Lender pursuant to the Transaction Documents but which was not deducted or withheld due to the Borrower’s or the Administrative Agent’s reasonable reliance on an Internal Revenue Service Form W-8BEN or W-8ECI or W-9 (or applicable successor form) theretofore delivered by such Lender pursuant to Section 5.3(c)(i) or (ii) if such form was inaccurate in any material respect when delivered by such Lender and such Lender had actual knowledge of such inaccuracy at the time such Lender delivered such form.

Section 5.4.           (a)  Other Taxes.  In addition to the amounts described elsewhere in this Article V, the Borrower shall pay, and indemnify and hold harmless on a net After-Tax Basis, each Lender, the Security Agent and the Administrative Agent from and against all Other Taxes (other than (i) Taxes imposed by deduction or withholding from amounts payable by the Borrower to the Security Agent, the Administrative Agent or Lender, (ii) Excluded Taxes and (iii) Taxes imposed on or with respect to a transfer (including a participation) of any interest in a Loan unless such transfer is in connection with an Event of Default or at the Borrower’s request).

(b)          Contest of Tax Claims.  If a Lender, the Security Agent or the Administrative Agent (each a “Tax Indemnitee”) receives a written claim from any taxing authority for any Tax for which the Borrower is liable pursuant to Section 5.3 or 5.4 (a “Tax Claim”), such Tax Indemnitee shall promptly notify the Borrower in writing.  If requested by the Borrower in writing within thirty (30) days after receipt of such Tax Indemnitee’s written notice (provided that if a response to such Tax Claim is due less than forty (40) days after the Borrower’s receipt of such Tax Indemnitee’s notice, the Borrower’s request must be made within fifteen (15) days or, if longer, the period ending not later than the tenth (10th) day before the day on which the response to such Tax Claim is due), such Tax Indemnitee shall in good faith contest or, at such Tax Indemnitee’s election, permit the Borrower to contest (unless such contest involves Excluded Taxes or, in such Tax Indemnitee’s reasonable, good faith judgment, permitting the Borrower to contest may have an adverse effect on such Tax Indemnitee), in each case in accordance

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with and to the extent permitted by applicable law and at the Borrower’s expense, such Tax Claim, provided that no Tax Indemnitee shall have any obligation to commence or continue the contest of any such Tax Claim unless the following conditions are satisfied at the time the contest is to be commenced and at all times during the contest:

(i)            no Event of Default (or event described in Section 7.1(b) or (f) which, after notice or lapse of time, or both, would become an Event of Default) shall have occurred and be continuing,

(ii)           contesting such Tax Claim would not result in (A) any risk of sale, forfeiture, confiscation, seizure or loss of, or the imposition of a Lien (other than a Lien for the Tax that is the subject of such contest, provided that enforcement of such Lien is stayed until the final determination of such contest and the Borrower maintains adequate reserves with respect to such Lien) on, the Aircraft or any part thereof or (B) any risk of imposition of criminal liability,

(iii)          the aggregate amount of the Taxes that are to be contested exceeds Twenty-Five Thousand Dollars ($25,000),

(iv)          such Tax Indemnitee shall have received a written confirmation of the Borrower that the Taxes that are the subject of such Tax Claim are Taxes for which the Borrower is liable pursuant to Section 5.3 or 5.4, provided that the Borrower shall not be bound by such confirmation to the extent that the final determination of the contest demonstrates that the Taxes that are the subject of such Tax Claim are Excluded Taxes,

(v)           the Borrower, upon the written request of such Tax Indemnitee, shall have provided such Tax Indemnitee, at the expense of the Borrower, with an opinion of counsel selected by the Borrower and reasonably acceptable to such Tax Indemnitee to the effect that there is a substantial basis in law and fact to contest such Tax Claim and a realistic expectation that a contest of such Tax Claim would be successful,

(vi)          if such Tax Indemnitee decides to contest such Tax Claim by paying the Taxes that are the subject of such Tax Claim and taking action to obtain a refund thereof, the Borrower shall have made an interest-free advance to such Tax Indemnitee in an amount equal to the amount of those Taxes and shall indemnify such Tax Indemnitee and its Affiliates on an After-Tax Basis for any adverse Tax consequences (taking into account all relevant Tax benefits and Tax detriments) to such Tax Indemnitee or any of its Affiliates resulting from such interest-free advance, and

(vii)         the Borrower shall be paying, on demand and on an After-Tax Basis, all costs and expenses incurred by such Tax Indemnitee, the Security Agent, the Administrative Agent or any Lender in connection with the conduct of such contest (including, without limitation, reasonable attorneys’ and accountants’ fees and disbursements).

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(c)           Non-Parties.  If a Tax Indemnitee is not a party to this Agreement, the Borrower may require such Tax Indemnitee to agree in writing to the terms of Sections 5.3 and 5.4 prior to making any payment to such Tax Indemnitee under Section 5.3 or 5.4.

Section 5.5.           Indemnity.  (a)  Indemnity Obligation.  The Borrower agrees to indemnify and hold harmless each Lender, the Security Agent, the Administrative Agent, and their respective successors, assigns, directors, officers, employees and agents (hereinafter in this Section 5.5 referred to individually as an “Indemnitee,” and collectively as “Indemnitees”) on an After-Tax Basis against any and all liabilities, obligations, losses, damages, penalties, claims, demands, actions, suits, judgments and any and all costs and expenses (including reasonable attorneys’ fees, disbursements and other charges) (for the purposes of this Section 5.5 the foregoing are collectively called “Losses”) of whatsoever kind and nature imposed on, asserted against or incurred or suffered by any of the Indemnitees arising out of or by reason of any actual or threatened investigation, litigation, or other similar proceedings relating to the Security Agreement or the exercise or enforcement by the Security Agent of any of the terms, rights, or remedies thereunder, or in any way relating to or arising out of the manufacture, ownership, ordering, purchase, delivery, control, acceptance, lease, possession, operation, condition, sale, return or other disposition, or use of the Estate (including latent or other defects, whether or not discoverable), the violation of the Laws of any country, state or other governmental authority with respect to or arising otherwise in connection with the Estate, or any tort (including claims arising or imposed under the doctrine of strict liability, or for or on account of injury to or the death of any Person (including any Indemnitee), or property damage) with respect to or arising otherwise in connection with the Estate (but excluding any such Losses to the extent incurred by reason of (i) the gross negligence or willful misconduct of such Indemnitee or any related Indemnitee (as defined below), (ii) Taxes, reserve requirements or similar regulatory requirements imposed by banking authorities except as otherwise provided in Sections 5.1, 5.2, 5.3 and 5.4 hereof, (iii) breaches by such Indemnitee or any related Indemnitee of any Transaction Document to which it is a party, (iv) any representation or warranty made by such Indemnitee or any related Indemnitee being false in any material respect when made or deemed made, or (v) to the extent attributable to the failure of the Security Agent or the Administrative Agent to distribute funds received and distributable by it in accordance any such Transaction Documents).  For purposes of subclauses (i), (iii) and (iv) above, an Indemnitee shall be considered a “related” Indemnitee with respect to another Indemnitee if such Indemnitee is an Affiliate or employer of such other Indemnitee or a director, officer, employee or agent of such other Indemnitee, or a successor or assignee of such other Indemnitee.

(b)          Indemnification Procedures.

(i)            Notice.  In case any action, suit or proceeding shall be brought against any Indemnitee for which such Indemnitee will seek indemnification under Section 5.5(a), such Indemnitee shall notify the Borrower within sixty (60) days of the commencement thereof and the Borrower (or its insurer(s)) may,

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subject to the provisions of this Section 5.5, at its expense, participate in and to the extent that it shall wish (subject to the provisions of the following subsections), assume and control the defense thereof and, subject to Section 5.5(b)(iii), settle or compromise the same.  Notwithstanding the foregoing, the failure of any Indemnitee to notify the Borrower as provided in this Section 5.5(b)(i) shall not release the Borrower from any of its obligations to indemnify such Indemnitee hereunder, except to the extent that such failure results in any additional Losses to the Borrower (in which event the Borrower shall not be responsible for such additional Losses) or materially impairs the Borrower’s ability to contest such claim.

(ii)           Control.  The Borrower or its insurer(s) shall have the right, at its or their expense, to investigate and, if the Borrower or its insurer(s) shall agree not to dispute liability to the Indemnitee giving notice of such action, suit or proceeding under Section 5.5(a) or under any insurance policies pursuant to which coverage is sought, control the defense of any action, suit or proceeding relating to any Losses for which indemnification is sought pursuant to this Section 5.5, and each Indemnitee shall cooperate with the Borrower or its insurer(s) with respect thereto; provided, that the Borrower shall not be entitled to control the defense of any such action, suit, proceeding or compromise any such Losses during the continuance of any Event of Default and so long as no such cooperation shall entail a material risk of (A) criminal liability of such Indemnitee, (B) unindemnified civil liability of such Indemnitee or (C) the sale, loss, forfeiture or seizure of any part of the Estate.  In connection with any such action, suit or proceeding being controlled by the Borrower, such Indemnitee shall have the right to participate therein, at its sole cost and expense.

(iii)          Settlement.  In no event shall any Indemnitee enter into a settlement or other compromise with respect to any Losses without the prior written consent of the Borrower, unless such Indemnitee waives its right to be indemnified with respect to such Losses under this Section 5.5.

(iv)          Cooperation.  Each Indemnitee agrees to cooperate with the Borrower and its insurers in the exercise of their rights to investigate, defend or compromise Losses for which indemnification may be claimed hereunder.

(v)           Nonparties.  If an Indemnitee is not a party to this Agreement, the Borrower may require such Indemnitee to agree in writing to the terms of this Section 5.5 prior to making any payment to such Indemnitee under this Section 5.5.

(vi)          No Requirement.  Nothing contained in this Section 5.5(b) shall be deemed to require an Indemnitee to assume responsibility for or control of any judicial proceeding with respect to any Losses.

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ARTICLE VI

CONDITIONS PRECEDENT

Section 6.1.           General Conditions.  The obligation of the Original Lender to make the Loan is subject to the conditions that on or prior to the Funding Date (unless otherwise indicated):

(a)           The Borrower shall have delivered to the Administrative Agent (with a copy for each Original Lender) the following:

(i)            an executed counterpart of this Agreement;

(ii)           an executed counterpart of the Security Agreement;

(iii)          a Note (duly executed by the Borrower) in an original principal amount equal to the Original Lender’s Commitment shall have been issued to the Original Lender;

(iv)          the broker’s report and insurance certificate required by Annex B of the Security Agreement;

(v)           copies of the FAA Bill of Sale, Warranty Bill of Sale and FAA Application for Registration;

(vi)          a copy of the fully executed purchase agreement respecting the Aircraft between the Borrower and the Seller showing the amount of the purchase price paid by the Borrower;

(vii)         an opinion of Dow Lohnes PLLC, special regulatory counsel to the Borrower, substantially in the form of Exhibit I.

(viii)        an opinion of Orrick, Herrington & Sutcliffe LLP, special counsel to the Borrower, substantially in the form of Exhibit D to this Agreement;

(ix)           an opinion of the Borrower’s in-house counsel, substantially in the form of Exhibit E to this Agreement;

(x)            an opinion of FAA Counsel, substantially in the form of Exhibit H to this Agreement;

(xi)           (1) a certificate of the Secretary or an Assistant Secretary of the Borrower certifying (i) the resolutions of the Borrower’s board of directors or executive committee of such board approving the transactions contemplated by this Agreement, (ii) the name and signature of each officer who executes a Transaction Document on the Borrower’s behalf (on which certificate the Administrative Agent, the Security Agent and each Lender may conclusively rely until a revised certificate is received), (iii) the Borrower’s certificate of incorporation and (iv) a copy of the Borrower’s By-Laws and (2) a good standing certificate of the Borrower from the Secretary of State of the State of Delaware.

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(xii)          an Officer’s Certificate of the Borrower, dated as of the Funding Date, stating that its representations and warranties set forth in Sections 3.1 and 3.2 of this Agreement are true and correct as of the Funding Date (or, to the extent that any such representation and warranty expressly relates to an earlier date, true and correct as of such earlier date); and

(xiii)         within ninety (90) days of the Closing, the Borrower shall use its reasonable best efforts to procure that the PBH Agreement Assignment shall have been executed and delivered in favor of the Security Agent.

(b)           The Borrower shall have paid to the Original Lender an upfront fee equal to the 25 basis points of the Loan.

(c)           On the Funding Date, after giving effect to the filing of the FAA Filed Documents, the Registrations and the Financing Statements, the Security Agent shall have received a duly perfected first priority security interest in all of the Borrower’s right, title and interest in the Aircraft, subject only to Inchoate Liens, and a first priority international interest in the Aircraft and each Engine.

(d)           No change shall have occurred after the date of this Agreement in any applicable law that makes it a violation of law for (a) the Borrower, the Security Agent, the Administrative Agent or any Lender to execute, deliver and perform the Transaction Documents to which any of them is a party or (b) any Lender to make the Loans with respect to the Aircraft.

(e)           On the Funding Date, no event shall have occurred and be continuing, or would result from the transactions contemplated hereby, which constitutes an Event of Default or a Potential Default.

(f)            No Event of Loss (as defined in the Security Agreement) with respect to the Airframe or any Engine shall have occurred and no circumstance, condition, act or event that, with the giving of notice or lapse of time or both, would give rise to or constitute an Event of Loss with respect to the Aircraft or any Engine shall have occurred.

(g)           The Borrower shall have good title to the Aircraft, free and clear of all Liens, except Permitted Liens.

(h)           The Security Trustee shall be entitled to the benefits of Section 1110 of the Bankruptcy Code with respect to the Aircraft as provided in the Security Agreement in the event of a case under Chapter 11 of the Bankruptcy Code in which the Borrower is a debtor.

(i)            On the Funding Date (i) the FAA Filed Documents with respect to the Estate shall have been duly filed for recordation (or shall be in the process of being so duly filed for recordation) with the FAA in accordance with the Act, (ii) the registrations of a prospective international interest relating to the Security Agreement as to the Airframe and Engines (with no stated lapse date) (the “Registrations”) will have been made and consented to with the International Registry between Borrower and Security Agent, in favor of Security Agent, and there shall be no other registrations with respect to the Airframe or either Engine, which remain effective, with the International Registry, and (iii) the Financing Statements with respect to the Estate shall have been duly filed (or shall be in the process of being so duly filed) in the appropriate jurisdiction.

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(j)            No action or proceeding shall have been instituted, nor shall any action be threatened in writing, before any Governmental Authority, nor shall any order, judgment or decree have been issued or proposed to be issued by any Governmental Authority, to set aside, restrain, enjoin or prevent the completion and consummation of this Agreement or any other Transaction Document or the transactions contemplated hereby or thereby.

(k)           The representations and warranties in Sections 3.1 and 3.2 shall be true and correct in all material respects on and as of such date (except to the extent such representations and warranties relate solely to an earlier date but then as of such earlier date).

ARTICLE VII

EVENTS OF DEFAULT

Section 7.1.           Events of Default.  Each of the following events shall constitute an “Event of Default,” and, to the extent the Cape Town Convention is applicable, shall be the circumstances that shall constitute a “default” as referred to in Article 17(1) of the Consolidated Text, in each case whether any such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body:

(a)           The Borrower shall fail to make any payment of principal of the Loan or Prepayment Fee on the due date thereof or the Borrower shall fail to make any payment of interest on the loan within two (2) days after the due date thereof; or

(b)           The Borrower shall fail to pay any other amount payable hereunder or under any other Transaction Document when due and such failure shall continue for a period of five (5) Business Days after receipt by the Borrower of written notice that such payment is overdue given to the Borrower by the Security Agent, the Administrative Agent or any Lender; or

(c)           Any representation or warranty made by the Borrower herein or in any other Transaction Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate or other document (other than financial statements and other documents, including exhibits, filed with the SEC) prepared by the Borrower and furnished pursuant to or in connection with this Agreement or any other Transaction Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder shall prove to have been untrue in any material respect when made or deemed made; or

(d)           The Borrower shall fail to perform or observe any term, covenant or agreement contained in this Agreement or any other Transaction Document on its part to be performed or observed and such failure shall remain unremedied for a period of thirty (30) days after the earlier of (i) Actual Knowledge of the Borrower or (ii) written notice thereof is given to the Borrower by the Administrative Agent or any Lender; provided, however, that if Borrower shall be diligently undertaking to cure any such failure which

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as it relates to maintenance, service, repair or overhaul of the Aircraft, the Engines or Parts and, notwithstanding the diligence of Borrower in attempting to cure such failure, such failure is not cured within said thirty-day period but is curable with future due diligence, there shall exist no Event of Default under this Section 7.1 so long as Borrower is proceeding with due diligence to cure such failure and such failure is remedied not later than ninety (90) days after such original failure; or

(e)           The Borrower shall consent to the appointment of or the taking of possession by a receiver, trustee or liquidator of itself or of substantially all of its property, or the Borrower shall admit in writing its inability to pay its debts generally as they come due, or does not pay its debts generally as they become due or shall make a general assignment for the benefit of creditors, or the Borrower shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization, liquidation or other relief in a case under any bankruptcy laws or other insolvency laws (as in effect at such time), or the Borrower shall seek relief by voluntary petition, answer or consent, under the provisions of any other bankruptcy or other similar law providing for the reorganization or winding-up of corporations (as in effect at such time) or the Borrower’s board of directors shall adopt a resolution authorizing any of the foregoing; or

(f)            An order, judgment or decree shall be entered by any court of competent jurisdiction appointing, without the consent of the Borrower, a receiver, trustee or liquidator of the Borrower or of substantially all of its property, or substantially all of the property of the Borrower shall be sequestered, and any such order, judgment or decree of appointment or sequestration shall remain in force undismissed, unstayed and unvacated for a period of sixty (60) days after the date of entry thereof; or a petition against the Borrower in a case under any bankruptcy laws or other insolvency laws (as in effect at such time) is filed and not withdrawn or dismissed within sixty (60) days thereafter, or if, under the provisions of any law providing for reorganization or winding-up of corporations which may apply to the Borrower, any court of competent jurisdiction assumes jurisdiction, custody or control of the Borrower or of substantially all of its property and such jurisdiction, custody or control remains in force unrelinquished, unstayed and unterminated for a period of sixty (60) days; or

(g)           The Borrower shall fail to carry and maintain, or cause to be carried and maintained, insurance on and in respect of the Aircraft or any Engine in accordance with the provisions of Article VII of the Security Agreement; or

(h)           The Borrower shall cease to be a U.S. Air Carrier; or

(i)            The Security Agreement shall for any reason cease to be a valid first priority perfected security interest (subject to Permitted Liens) in favor of the Security Agent in the Borrower’s right, title and interest in and to the Aircraft under the laws of the United States of America (assuming the Aircraft is registered with the FAA) and, if the Aircraft is subject to a lease to a lessee domiciled in any other jurisdiction, such jurisdiction.

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then, if an Event of Default referred to in clause (e) or (f) of this Section 7.1 shall have occurred and be continuing, (x) the principal of the Loan then outstanding, together with interest accrued but unpaid thereon, LIBOR Breakage Costs and all other amounts owing to the Security Agent, the Administrative Agent and any Lender hereunder or under any other Transaction Document, shall immediately and without further act become due and payable, and (y) the Commitments shall automatically terminate, in each case without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower and, if any other Event of Default shall have occurred and be continuing, then the Administrative Agent shall, upon request of the Required Lenders, by notice to the Borrower, terminate the Commitments and declare the unpaid principal of the Loans then outstanding, together with interest accrued but unpaid thereon, LIBOR Breakage Costs and all other amounts due to the Security Agent, the Administrative Agent and any Lender hereunder or under any other Transaction Document, to be forthwith due and payable, whereupon the Commitments shall terminate and the Loans, all such interest and all other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower.  In addition to any other remedies available to the Security Agent, the Administrative Agent and the Lenders under the Transaction Documents or at law or otherwise, if an Event of Default shall have occurred and so long as the same shall be continuing unremedied, then and in every such case the Security Agent may exercise any or all of the rights and powers and pursue any and all of the remedies set forth in the Security Agreement.

ARTICLE VIII

THE SECURITY AGENT AND THE ADMINISTRATIVE AGENT

Section 8.1.           Appointment and Authorization.  (a)  Each Lender hereby irrevocably designates and appoints C.I.T. Leasing Corporation as the “Administrative Agent” and C.I.T. Leasing Corporation as the “Security Agent” (collectively, the “Agents”) under the Transaction Documents and authorizes each Agent to take such actions and to exercise such powers as are delegated to it thereby and to exercise such other powers as are reasonably incidental thereto.  Neither Agent shall have any duties other than those expressly set forth in a Transaction Document or any fiduciary relationship with any Lender, and no implied obligations or liabilities shall be read into this Agreement, or otherwise exist, against either Agent.  Neither Agent assumes, nor shall either Agent be deemed to have assumed, any obligation to, or relationship of trust or agency with, the Borrower.  Notwithstanding any provision of this Agreement or any other Transaction Document, in no event shall either Agent ever be required to take any action which exposes it to personal liability or which is contrary to the provision of any Transaction Document or applicable law.

(b)           The provisions of Articles X and XI of the Security Agreement are agreed by the Lenders to set forth the duties and responsibilities, and limitations of liability, of the Security Agent under the Security Agreement.

Section 8.2.           Delegation of Duties.  Each of the Agents may execute any of its duties through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.

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Section 8.3.           Exculpatory Provisions.  Neither Agent and none of their respective directors, officers, agents or employees shall be liable to any Lender for any action taken or omitted (i) with the consent or at the direction of the Required Lenders or (ii) in the absence of such Agent’s gross negligence or willful misconduct.  Neither Agent shall be responsible to any Lender or other Person for (a) any recitals, representations, warranties or other statements made by the Borrower or any of its Affiliates, (b) the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Transaction Document, (c) any failure of the Borrower or any of its Affiliates to perform any obligation or (d) the satisfaction of any condition specified in Article VI.  Neither Agent shall have any obligation to any Lender to ascertain or inquire about the observance or performance of any agreement contained in any Transaction Document or to inspect the properties, books or records of the Borrower or any of its Affiliates.

Section 8.4.           Reliance by Agents.  As between either Agent and the Lenders, each of the Agents shall in all cases be entitled to rely, and shall be fully protected in relying, upon any document, other writing or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person and upon advice and statements of legal counsel (including counsel to the Borrower or any of its Affiliates), independent accountants and other experts selected by such Agent.  Each of the Agents shall in all cases be fully justified in failing or refusing to take any action under any Transaction Document unless it shall first receive such advice or concurrence of the Lenders, and assurance of its indemnification, as it deems appropriate.  Subject to Section 9.1, neither Agent shall effect any waiver or grant any consent or make any determination (except as provided in Section 1.5(a)) without the direction of the Required Lenders.

Section 8.5.           Notice of Events of Default.  Neither Agent shall be deemed to have knowledge or notice of the occurrence of any Potential Default unless it has received notice from any Lender or the Borrower stating that a Potential Default has occurred hereunder and describing such Potential Default.  Promptly upon receiving notice of the occurrence of any Potential Default, the relevant Agent shall notify each Lender and the other Agent of such occurrence.  The Agents shall take such action concerning a Potential Default as may be directed by the Required Lenders (or, if required for such action, all of the Lenders), but until an Agent receives such directions, such Agent may (but shall not be obligated to) take such action, or refrain from taking such action, as such Agent deems advisable and in the best interests of the Lenders.

Section 8.6.           Non-Reliance on Agents and Other Lenders; Lender Representations.  Each Lender expressly acknowledges that neither Agent and none of their respective officers, directors, employees, agents, attorneys-in-fact or Affiliates has made any representations or warranties to it and that no act by either Agent hereafter taken, including any review of the affairs of the Borrower or any of its Affiliates, shall be deemed to constitute any representation or warranty by such Agent.  Each Lender represents and warrants to each of the Agents that, independently and without reliance upon either Agent or any other Lender and based on such documents and information as it has deemed appropriate, it has made and will continue to make its own appraisal of and investigation into the business, operations, property, prospects, financial and other conditions and creditworthiness of the Borrower and its own decision to enter into this Agreement and to take, or omit, action under any Transaction Document.  Except for items specifically required to be delivered hereunder, neither Agent shall have any duty or

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responsibility to provide any Lender with any information concerning the Borrower or any of its Affiliates that comes into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or Affiliates.

Section 8.7.           Agents and Affiliates.  Each of the Agents and its Affiliates may extend credit to, accept deposits from and generally engage in any kind of business with the Borrower or any of its Affiliates and, in its role as a Lender, C.I.T. Leasing Corporation may exercise or refrain from exercising its rights and powers as if it were not Administrative Agent or Security Agent.

Section 8.8.           Indemnification.  Each Lender shall indemnify and hold harmless each of the Agents and its officers, directors, employees, representatives and agents (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably in accordance with its Percentage Share (or, after the Commitments have been terminated, its Ratable Share) from and against any and all liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses and disbursements of any kind whatsoever (including in connection with any investigative or threatened proceeding, whether or not such Agent or such Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against such Agent or such Person as a result of, or related to, any of the transactions contemplated by the Transaction Documents or the execution, delivery or performance of the Transaction Documents or any other document furnished in connection therewith (but excluding any such liabilities, obligations, losses, damages, penalties, judgments, settlements, costs, expenses or disbursements resulting solely from the gross negligence or willful misconduct of such Agent or such Person as finally determined by a court of competent jurisdiction).

Section 8.9.           Successor Agents.  (a)  The Security Agent may resign or be removed and shall be replaced in accordance with the terms of Article XIII of the Security Agreement.

(b)           Each Agent may, upon at least thirty (30) days notice to the Borrower, the other Agent and each Lender, resign its position as an Agent.  Such resignation shall not become effective until a successor Agent acceptable to the Borrower is appointed by the Required Lenders and has accepted such appointment.  Upon such acceptance of its appointment as an Agent hereunder by a successor Agent, such successor Agent shall succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Transaction Documents.  After any retiring Agent’s resignation hereunder, the provisions of Article V and this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent.

ARTICLE IX

MISCELLANEOUS

Section 9.1.           Amendments.  Neither this Agreement nor any other Transaction Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender affected thereby, (i) extend the final scheduled maturity of

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the Loan or any Note, or reduce the rate or extend the time of payment of interest or fees thereon, or reduce the principal amount thereof, (ii) increase the Commitment of any Lender, (iii) release any part of the Estate (except as expressly provided in the Security Agreement), (iv) amend, modify or waive any provision of this Section 9.1, (v) reduce the percentage specified in the definition of Required Lenders, (vi) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement or (vii) impair any indemnity under a Transaction Document in favor of such Lender; provided, further, that no such change, waiver, discharge or termination shall without the consent of the relevant Agent, amend, modify or waive any provision of Article VIII as same applies to either the Security Agent or the Administrative Agent or any other provision as same relates to the rights or obligations of such Agent.

Section 9.2.           Notices.  Unless otherwise specified, all notices and other communications hereunder shall be in writing (including by facsimile communication), given to the appropriate Person at its address or facsimile number set forth on the signature pages hereof, or at such other address or facsimile number as such Person may specify, and effective when received at the address specified by such Person.  The number of days for any advance notice required hereunder may be waived (orally or in writing) by the Person receiving such notice and, in the case of notices to the Security Agent, the consent of each Person to which the Security Agent is required to forward such notice.

Section 9.3.           Costs and Expenses.  The Borrower agrees to pay promptly after receipt of reasonably detailed invoices, all reasonable and actual costs and expenses of the Original Lender, the Security Agent and the Administrative Agent in connection with the preparation, execution and delivery of the Transaction Documents (whether or not any such Transaction Document is entered into), including, without limitation the reasonable fees and expenses of (a) Holland & Knight LLP, special counsel to the Lenders and the Agents (provided that the Borrower shall not be obligated to pay any amount in excess of $75,000 respecting such counsel’s fees) and (b) FAA counsel.  The Borrower further agrees to pay on demand all reasonable and actual costs and expenses of the Agents, if any (including, without limitation, reasonable counsel fees and expenses for one counsel), in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of the Transaction Documents after the occurrence of a Potential Default or an Event of Default.  The Borrower shall pay all reasonable and actual costs and expenses of the Agents (including, without limitation, reasonable counsel fees and expenses for one counsel) incurred after the Closing in connection with any supplements or amendments of the Transaction Documents (including, without limitation, any related recording and registration costs) which are (x) requested by the Borrower, or (y) necessary or required to effectuate the intent of the Transaction Documents or waivers or consents requested by the Borrower

Section 9.4.           Certain Agreements.  Each Lender and each of the Security Agent and the Administrative Agent agrees as to itself with the Borrower that, so long as no Event of Default shall have occurred and be continuing, such person shall not (and shall not permit any Affiliate or other person claiming by, through or under it to) take or cause to be taken any action contrary to the Borrower’s right to quiet enjoyment of the Estate, and to possess, use, retain and control the Estate and all revenues, income and profits derived therefrom without hindrance.

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Section 9.5.           Entire Agreement.  The Transaction Documents constitute the entire understanding of the parties thereto concerning the subject matter thereof.  Any previous agreements, whether written or oral, concerning such matters are superseded thereby.

Section 9.6.           Cumulative Rights and Severability.  All rights and remedies of the Lenders, the Security Agent and the Administrative Agent hereunder and under any other Transaction Document shall be cumulative and non-exclusive of any rights or remedies such Persons have under law or otherwise.  To the fullest extent permitted by law, any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 9.7.           Waivers.  No failure or delay of any party hereto in exercising any power, right, privilege or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right, privilege or remedy preclude any other or further exercise thereof or the exercise of any other power, right, privilege or remedy.  Any waiver hereof shall be effective only in the specific instance and for the specific purpose for which such waiver was given.  After any waiver, each of the Borrower, the Lenders and, the Security Agent and the Administrative Agent shall be restored to its former position and rights and any Potential Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to (or impair any right consequent upon) any subsequent or other Potential Default.

Section 9.8.           Successors and Assigns; Participations; Assignments.

(a)           Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.  Except as otherwise provided herein, the Borrower may not assign or transfer any of its rights or delegate any of its duties without the prior consent of the Security Agent and the Administrative Agent and each of the Lenders.

(b)           Participations.  Any Lender may sell to one or more Persons (each a “Participant”) participating interests in the interests of such Lender hereunder.  Such Lender shall remain solely responsible for performing its obligations hereunder, and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations hereunder.  Each Participant shall be entitled to the benefits of Article V; provided that (x) such Participant shall not be entitled to any greater benefit under Article V than the Lender that sold the participating interest to the Participant would have been entitled to thereunder, (y) the Borrower shall not be liable for the payment of amounts under Article V in respect of the same event, condition or circumstance to both the Lender that sold the participating interest to the Participant and the Participant, and (z) no Participant shall be entitled to any benefit thereunder unless it shall perform such obligations as are imposed on the Lenders under Article V.  Any claim by such Participant shall be derivative through the Lender that sold the participating interest to it and no Participant shall have any direct rights as to the Borrower or otherwise in respect of the Secured Obligations.  A Lender shall not agreewith a Participant to restrict such Lender’s right to agree to any amendment, waiver or modification hereto, except amendments described in the proviso to Section 9.1.

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(c)           Assignments.  Notwithstanding the foregoing, any Lender may assign all or a portion of its Commitment and its outstanding Notes to a Qualified Affiliate of such Lender or assign all, or if less than all, a portion equal to at least $5,000,000 in the aggregate face amount of Notes and of such Commitment (and related Secured Obligations) to one or more Eligible Assignees, each of which assignees referred to in this Section 9.8(c) shall become a party to this Agreement as a Lender by execution of a supplement hereto in the form of Exhibit F (a “Transfer Supplement”) hereto, provided that such transfer or assignment will not be effective until recorded by the Administrative Agent on the Register pursuant to Section 9.8(d) hereof.  To the extent of any assignment pursuant to this Section 9.8(c) (other than an assignment to a Qualified Affiliate pursuant to the preceding sentence), the assigning Lender shall be relieved of its obligations hereunder with respect to its assigned Commitment.  At the time of each assignment pursuant to this Section 9.8(c) to a Person which is not already a Lender hereunder, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the Internal Revenue Service forms (and, if applicable, a Certificate re Non-Bank Status) required by Section 5.3 (c)(i).

(d)           Note Register.  The Borrower hereby designates the Administrative Agent to serve as the Borrower’s agent, solely for purposes of this Section 9.8(d), to maintain a register (the “Note Register”) on which it will record the registered holder of the Notes and the registration of transfers of Notes made pursuant to and in accordance with Section 9.8(c).  The Note Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice, and the Administrative Agent shall, reasonably promptly after (a) any person becomes a Lender after the date hereof and (b) any Lender alters or modifies its name or address, notify the Borrower of and deliver to the Borrower a written update of the names and addresses of all Lenders.  Failure to make any such recordation or any error in such recordation shall not affect the Borrower’s obligations in respect of the Loan Amount of any Lender.  With respect to any Lender, the transfer of the Commitment of such Lender and the rights to the principal of, and interest on, the Loan Amount made pursuant to such Commitment shall not be effective until such transfer is recorded on the Note Register maintained by the Administrative Agent with respect to ownership of such Commitment and Loan Amount and prior to such recordation all amounts owing to the transferor with respect to such Commitment and Loan Amount shall remain owing to the transferor.  The registration of assignment or transfer of all or part of the Commitment and the Loan Amount shall be recorded by the Administrative Agent on the Note Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Transfer Supplement.  Coincident with the delivery of such a Transfer Supplement to the Administrative Agent for acceptance and registration of assignment or transfer of all or part of a Loan Amount, or as soon thereafter as practicable, the assigning or transferor Lender shall surrender the Notes evidencing such Loan Amount, and thereupon one or more new Notes of the same series of Notes in the same aggregate principal amount shall be issued by the Borrower to the assigning or transferor Lender and/or the new Lender, as appropriate to reflect such assignment.

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Section 9.9.           Confidentiality.  None of the Security Agent, the Administrative Agent or any Lender shall disclose any nonpublic information relating to the Borrower (provided to it by the Borrower) or any Transaction Document to any other Person without the consent of the Borrower, other than (a) to such Agent’s or Lender’s Affiliates and its officers, directors, employees, agents and advisors and, as contemplated by Section 9.8, to actual or prospective assignees and participants, and then, in all such cases, only with an undertaking by the party to whom such information is disclosed to keep such information confidential, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking, and (d) to the extent reasonably necessary in connection with any dispute related to, or enforcement of, the Transaction Documents.

Section 9.10.        Counterparts.  This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument..

Section 9.11.Governing Law; Submission to Jurisdiction; Venue.

(a)           THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICT OF LAWS THAT MIGHT APPLY THE LAWS OF ANY OTHER JURISDICTION.  Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Transaction Document, or for recognition or enforcement of any judgment, and each of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Agreement or the other Transaction Documents against any other party hereto, or such party’s properties, in the courts of any jurisdiction.  Each party hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address specified pursuant to Section 9.2, such service to become effective thirty (30) days after such mailing.

(b)           Each party hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

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Section 9.12.        Waiver of Trial by Jury.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

Section 9.13.        Headings   The headings of the various Articles and Sections herein and in the table of contents hereto are for the convenience of reference only and shall not define or limit any of the terms or provisions hereof.

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IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement [28139] to be executed and delivered by their duly authorized officers as of the date hereof.

C.I.T. LEASING CORPORATION,

as Administrative Agent

By:

Name: Kathleen Park

Title: Vice President

Address:     300 South Grand Avenue

Los Angeles, CA 90071

Attention:  Kathleen Park

Telephone:  213-613-2532

Facsimile:  213-613-3566

With a copy to:

C.I.T. Leasing Corporation

11 West 42nd Street, 12th Floor

New York, NY 10036

Attention: Chief Counsel

Telephone: 212-461-5504

Facsimile: 212-461-5402

C.I.T. LEASING CORPORATION,

as Security Agent

By:

Name: Kathleen Park

Title: Vice President

Address:   300 South Grand Avenue

     Los Angeles, CA 90071

Attention: Kathleen Park

Telephone: 213-613-2532

Facsimile: 213-613-3566

With a copy to:

C.I.T. Leasing Corporation

11 West 42nd Street, 12th Floor

New York, NY 10036

Attention: Chief Counsel

Telephone: 212-461-5504

Facsimile: 212-461-5402

HAWAIIAN AIRLINES, INC.,

as Borrower

By:

Name:

Title:

By:

Name:

Title:

Address:   3375 Koapaka Street

 Honolulu, HI 96819

Attention: Executive Vice President, Chief

                 Financial Officer and Treasurer

Telephone: 808-835-3030

Facsimile:  808-835-3699

With a copy to:

Orrick, Herrington & Sutcliffe LLP

777 S. Figueroa Street, Suite 3200

Los Angeles, CA 90017

Attention: Ronald W. Goldberg

Telephone: 213-629-2020

Facsimile: 213-612 2499

C.I.T. LEASING CORPORATION,

as Original Lender

By:

Name: Kathleen Park

Title: Vice President

Address:  300 South Grand Avenue

 Los Angeles, CA 90071

Attention: Kathleen Park

Telephone: 213-613-2532

Facsimile: 213-613-3566

With a copy to:

C.I.T. Leasing Corporation

11 West 42nd Street, 12th Floor

New York, NY 10036

Attention: Chief Counsel

Telephone: 212-461-5504

Facsimile: 212-461-5402

EX-10.50

Exhibit 10.50

SECURITY AGREEMENT [28139]

dated as of December 21, 2006

between

HAWAIIAN AIRLINES, INC.,
Borrower

and

C.I.T. LEASING CORPORATION,
Security Agent

_______________________

One Boeing Model 767-300ER Aircraft
Manufacturer’s Serial Number 28139
bearing U.S. Registration N582HA
with Two (2) Pratt and Whitney Model 4060-3 Engines

_______________________

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS				4
Section 1.01		Definitions		4
ARTICLE II [RESERVED]				11
ARTICLE III REGISTRATION AND MAINTENANCE; OPERATION; POSSESSION AND LEASES; INSIGNIA					11
Section 3.01	Registration and Maintenance			11
Section 3.02	Operation			12
Section 3.03	Possession and Leases			12
Section 3.04	Insignia			17
ARTICLE IV REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS					17
Section 4.01	Replacement of Parts			17
Section 4.02	Pooling of Parts; Temporary Replacement Parts			18
Section 4.03	Alterations, Modifications and Additions			18
Section 4.04	Improvements Owned by Others			19
ARTICLE V LOSS, DESTRUCTION, REQUISITION, ETC				19
Section 5.01	Event of Loss With Respect to the Aircraft			19
Section 5.02	Event of Loss With Respect to an Engine			19
Section 5.03	Application of Payments			21
Section 5.04	Requisition for Use of the Aircraft by the United States Government or the Government of Registry of the Aircraft			21
Section 5.05	Application of Payments During Existence of Potential Defaults or Events of Default			21
ARTICLE VI INSURANCE				22
Section 6.01	Borrower’s Obligation to Insure			22
Section 6.02	Insurance for Own Account			22
Section 6.03	Application of Insurance Proceeds			22
Section 6.04	Indemnification by Government in Lieu of Insurance			22
Section 6.05	Application of Payments During Existence of a Potential Default or an Event of Default			23
ARTICLE VII OTHER COVENANTS OF BORROWER				23
Section 7.01	Liens			23
Section 7.02	Inspection			24
Section 7.03	Amendments, Supplements, Etc			24
ARTICLE VIII [RESERVED]				25

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ARTICLE IX REMEDIES						25
Section 9.01					General; Acceleration	25
Section 9.02					Repossession and Sale	26
Section 9.03					Taking of Aircraft	27
Section 9.04					Discontinuance of Proceedings	28
Section 9.05					Waiver of Past Defaults	28
Section 9.06					Remedies Cumulative	28
Section 9.07					Payment After Event of Default, etc	28
ARTICLE X DUTIES OF THE SECURITY AGENT						30
Section 10.01				Notice of Event of Default		30
Section 10.02				Action Upon Instructions		31
Section 10.03				Indemnification		31
Section 10.04				No Duties Except as Specified in Security Agreement or Instructions		32
Section 10.05				No Action Except Under Loan Agreement, Security Agreement or Instructions		32
ARTICLE XI THE SECURITY AGENT						32
Section 11.01				Acceptance of Duties		32
Section 11.02				Absence of Duties		32
Section 11.03				No Representations or Warranties as to Aircraft or Documents		33
Section 11.04				No Segregation of Monies; No Interest		33
Section 11.05				Reliance; Agents; Advice of Counsel		33
Section 11.06				Further Assurances; Financing Statements		34
ARTICLE XII INVESTMENT OF FUNDS						34
Section 12.01			Investment of Funds			34
ARTICLE XIII SUCCESSOR SECURITY AGENTS						35
Section 13.01		Resignation of Security Agent; Appointment of Successor				35
ARTICLE XIV [RESERVED]						36
ARTICLE XV MISCELLANEOUS						36
Section 15.01	Termination of Security Agreement					36
Section 15.02	No Legal Title to Estate in Lenders					37
Section 15.03	Sale of Aircraft by the Security Agent is Binding					37
Section 15.04	Security Agreement for Benefit of the Security Agent and Lenders					37
Section 15.05	No Action Contrary to Borrower’s Rights; Quiet Enjoyment					37
Section 15.06	Notices					37

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Section 15.07	Authorization of Financing Statements	38
Section 15.08	Severability	38
Section 15.09	No Oral Modifications or Continuing Waivers	38
Section 15.10	Successors and Assigns	38
Section 15.11	Headings	38
Section 15.12	Governing Law; Counterpart Form	38
Section 15.13	WAIVER OF JURY TRIAL	39
Section 15.14	Counterparts	39

EXHIBIT A	—		Description of Aircraft
EXHIBIT B	—		Schedule of Countries Authorized for Domicile of Lessees
ANNEX A	—	Insurance
ANNEX B	—	Relevant Loan Agreement Definitions

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SECURITY AGREEMENT [28139], dated as of December 21, 2006 (the “Security Agreement”), between HAWAIIAN AIRLINES, INC. (the “Borrower”) and C.I.T. LEASING CORPORATION, as Security Agent hereunder (together with its successors hereunder in such capacity, the “Security Agent”).

WHEREAS, all capitalized terms used herein shall have the respective meanings set forth or referred to in Article I hereof;

WHEREAS, the Lenders have agreed to make a Loan to the Borrower in accordance with the terms of the Loan Agreement [28139] dated as of December 21, 2006 (the “Loan Agreement”) among the Borrower, C.I.T. Leasing Corporation, as Administrative Agent and Original Lender, the Lenders named therein and the Security Agent.

WHEREAS, the Borrower desires by this Security Agreement, among other things, to provide for the assignment, mortgage and pledge by the Borrower to the Security Agent, as the Estate hereunder, of the Borrower’s right, title and interest in and to the Aircraft and the payments and other amounts received in respect thereof in accordance with the terms hereof, as security for, among other things, the Borrower’s obligations to the Lenders, and for the benefit and security of the Lenders;

WHEREAS, all things have been done to make the Notes, when executed by the Borrower, the valid obligations of the Borrower; and

WHEREAS, all things necessary to make this Security Agreement the valid, binding and legal obligation of the Borrower, for the uses and purposes herein set forth and in accordance with its terms, have been done and performed and have happened;

— GRANTING CLAUSE —

NOW, THEREFORE, THIS SECURITY AGREEMENT WITNESSETH, that, to secure (i) the prompt payment of the principal of and and interest on, Prepayment Fee (if any), and all other amounts due with respect to, all Notes from time to time outstanding under the Loan Agreement and the performance and observance by the Borrower of all the agreements, covenants and provisions for the benefit of the Security Agent herein and for the benefit of the Lenders, the Administrative Agent and the Security Agent in the Loan Agreement and the Notes contained, and the prompt payment of any and all amounts from time to time owing hereunder and under the Loan Agreement and the other Transaction Documents (collectively, the “Secured Obligations”) for the security and benefit of the Lenders, the Administrative Agent, and the Security Agent and (ii) the prompt payment of the Other Secured Obligations and the performance and observance by the Borrower of all the agreements, covenants and provisions of the Other Transaction Documents for the security and benefit of the Other Secured Parties, and for the uses and purposes and subject to the terms and provisions hereof, and in consideration of the premises and of the covenants herein contained, and of the acceptance of the Notes by the Lenders, and of the sum of $1 and other good and valuable consideration paid to the Borrower by the Security Agent at or before the delivery hereof, the receipt whereof is hereby acknowledged, the Borrower has granted, bargained, sold, assigned, transferred, conveyed, mortgaged, pledged and confirmed, and does hereby grant, bargain, sell, assign, transfer, convey, mortgage, pledge

and confirm, unto the Security Agent and its successors and assigns, a first priority security interest in, a first mortgage lien upon and, to the extent applicable under the Cape Town Convention, a first priority international interest in, all right, title and interest of the Borrower in, to and under the following described property, rights and privileges (which collectively, including all property hereafter specifically subjected to the Lien of this Security Agreement, shall constitute the “Estate”), to wit:

1.             the Aircraft and all Replacement Engines to which the Borrower shall from time to time acquire title as provided herein, all as more particularly described in Exhibit A hereto, and all records, logs, manuals, data and inspection, modification and overhaul records and other documents at any time maintained with respect to the foregoing property;

2.             all warranties relating to the Aircraft (including warranties of title, merchantability, fitness for a particular purpose, quality and freedom from defects to the extent transferred to the Borrower by the Bills of Sale or otherwise running in favor of the Borrower, together in each case under this clause 2 with all rights, powers, privileges, options and other benefits of the Borrower thereunder with respect to the Airframe or the Engines, including, without limitation, the right to make all waivers and agreements, to give and receive all notices and other instruments or communications, to take such action upon the occurrence of a default thereunder, including the commencement, conduct and consummation of legal, administrative or other proceedings, as shall be permitted thereby or by law, and to do any and all other things which the Borrower is or may be entitled to do thereunder;

3.             each Lease, to the extent assigned under any lease assignment pursuant to Section 3.03(g), together with all rights, powers, privileges, options and other benefits thereunder, including the right to receive and collect all payments thereunder and to make all waivers and agreements, to give and receive notices, and to take all action thereunder or in respect thereof, as and to the extent provided in the applicable lease assignment;

4.             all insurance and requisition proceeds with respect to the Aircraft or any part thereof;

5.             all logs, manuals, books, flight and other records, maintenance records and other similar information relating to the Aircraft, including, without limitation, all such logs, manuals and data required to be maintained by the  FAA or the relevant aeronautical authority or by the applicable regulatory agency or body of any other jurisdiction in which the Aircraft may then be registered, as well as all right, title and interest of the Borrower in, to and under the overhaul, repair and maintenance manuals, programs and catalogues which are a part of or used in connection with the maintenance program for the Aircraft, and all claims or rights to payments thereunder and proceeds therefrom;

6.             all tolls, rents, revenues, issues, income, products, profits, estate, right, title, interest and claims whatsoever, at law as well as in equity, which the Borrower may have or possess on the date hereof or to which the Borrower may hereafter become legally or equitably entitled, directly or indirectly, from, in or to the property described in clauses 1 through 5 above inclusive, including all payments or proceeds payable to the Borrower with respect to the Aircraft as the result of the sale, lease or other disposition thereof, and all estate, right, title and interest of every nature whatsoever of the Borrower in and to the same;

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7.             all “general intangibles” (as such term is defined in Article 9 of the Uniform Commercial Code) of the Borrower relating to the foregoing collateral; and

8.             all proceeds of the foregoing.

Any and all properties referred to in this Granting Clause which are hereafter acquired by the Borrower, shall, without further conveyance, assignment or act by the Borrower or the Security Agent thereby become and be subject to the security interest hereby granted as fully and completely as though specifically described herein.

Notwithstanding any of the foregoing provisions of this Granting Clause, so long as no Event of Default shall have occurred and be continuing, the Borrower shall have the right, to the exclusion of the Security Agent, the Lenders and the Other Secured Parties, (i) to quiet enjoyment of the Aircraft, the Airframe and the Engines, and to possess, use, retain and control the Aircraft, the Airframe, the Engines and the Estate, and all revenues, income and profits derived therefrom and (ii) with respect to the agreements and instruments included in the Estate pursuant to clauses 2 and 3 of the Granting Clause (the “Assigned Agreements”), to exercise in the Borrower’s name all rights and powers of the Borrower under the Assigned Agreements and to retain any recovery or benefit resulting from the enforcement of any warranty or indemnity or other obligation under the Assigned Agreements; provided, further, that upon the occurrence and during the continuation of an Event of Default, the Security Agent shall be entitled to enter into any amendment, modification, supplement, rescission, cancellation or termination of the Assigned Agreements to the extent reasonably necessary or advisable to protect and preserve the Estate or the Security Agent’s interest therein.

— HABENDUM CLAUSE —

TO HAVE AND TO HOLD all and singular the aforesaid property unto the Security Agent, its successors and assigns, in trust for the benefit and security of the Lenders, the Administrative Agent and the Security Agent, and for the uses and purposes and subject to the terms and provisions set forth in this Security Agreement.

The Borrower does hereby constitute the Security Agent the true and lawful attorney of the Borrower (which appointment is coupled with an interest), irrevocably, with full power (in the name of the Borrower or otherwise) to ask, require, demand, receive, compound and give acquittance for any and all monies and claims for monies (in each case including insurance and requisition proceeds except as otherwise provided elsewhere herein) due and to become due under or arising out of all property which now or hereafter constitutes part of the Estate, to endorse any checks or other instruments or orders in connection therewith and to file any claims or to take any action or to institute any proceedings which the Security Agent may deem to be necessary or advisable in the premises; provided that the Security Agent agrees not to exercise such power of attorney unless an Event of Default shall be continuing.

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The Borrower does hereby warrant and represent that (except as permitted herein) it has not assigned or pledged any of its right, title, and interest hereby assigned to anyone other than the Security Agent.

IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows:

ARTICLE I

DEFINITIONS

Section 1.01   Definitions. For all purposes of this Security Agreement the following terms shall have the following meanings (such definitions to be equally applicable to both the singular and plural forms of the terms defined).  Any agreement referred to below shall mean such agreement as amended, supplemented and modified from time to time in accordance with the applicable provisions thereof and of the other Transaction Documents.  Unless otherwise specified, Section and Article references are to Sections and Articles of this Security Agreement.  Terms as defined in the Loan Agreement are included in Annex B hereto.

“Actual Knowledge” is defined in the Loan Agreement.

“Additional Insured(s)” means the Security Agent, the Administrative Agent, the Lenders and the Borrower in its capacity as lessor under any Lease together with their respective officers, directors, employees, servants, agents, successors and assigns.

“Administrative Agent” is defined in the Loan Agreement.

“Affiliate” is defined in the Loan Agreement.

“After-Tax Basis” means, with respect to any amount that is required by any Transaction Document to be paid on an After-Tax Basis, to any Indemnitee (or to any other Person for the account or benefit of any Indemnitee), payment of such amount, increased to the extent necessary so that such payment, after subtracting the amount of all Taxes payable to any taxing authority as a result of the receipt or accrual of such payment (taking into account any savings in Taxes with respect to the indemnified Taxes or other liability in respect of which such payment is due), shall be equal to the amount that is required to be paid on an After-Tax Basis.

“Agreed Value” means, with respect to the Aircraft, an amount at all times not less than 115% of the aggregate outstanding principal amount of the Notes.

“Aircraft” means the Airframe together with the two (2) Engines whether or not such Engines are installed on the Airframe or any other airframe, and, where the context permits, all logs, manuals, data and inspection, modification and overhaul records maintained with respect to the foregoing property; provided, however, that for purposes of Article VI and Annex A, the term “Aircraft” shall not include logs, manuals, data or inspection, modification or overhaul records.

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“Airframe” means the Boeing (also shown as BOEING on the International Registry drop-down menu) Model 767-300ER (also shown as 767-300 on the International Registry drop-down menu) aircraft (excluding Engines or engines) specified by United States Registration Number and Manufacturer’s Serial Number in Exhibit A and any and all related Parts.

“Bills of Sale” means the FAA Bill of Sale and the Warranty Bill of Sale.

“Business Day” is defined in the Loan Agreement.

“Cape Town Convention” means collectively, the official English language texts of the Convention on International Interests in Mobile Equipment (the “Convention”) and the Protocol to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the “Protocol”), both signed in Cape Town, South Africa on November 16, 2001, together with any protocols, regulations, rules, orders, agreements, instruments, amendments, supplements, revisions or otherwise that have or will be subsequently made in connection with the Convention or the Protocol by the “Supervisory Authority” (as defined in the Consolidated Text), the International Registry or “Registrar” (as defined in the Consolidated Text) or any other international or national, body or authority, all as in effect in the United States or other relevant Contracting State (as used in the Consolidated Text).  All references to articles or sections of the Cape Town Convention shall mean the article or section of the Consolidated Text. Except to the extent otherwise defined in the Transaction Documents, terms used in the Transaction Documents that are defined in the Cape Town Convention shall when used in relation to the Cape Town Convention have the meanings ascribed to them in the Cape Town Convention.

“Civil Reserve Air Fleet Program” or “CRAF” means the Civil Reserve Air Fleet Program administered by the United States Government or any substantially similar program.

“Closing” is defined in the Loan Agreement.

“Consolidated Text” means the combination of the Convention or the Protocol (each as defined in the definition of Cape Town Convention) that was authorized and created pursuant to Resolution No. 1 adopted by the Cape Town Diplomatic Conference and any reference to a provision of the Consolidated Text is a reference to the provision of the Convention or the Protocol from which it is derived.

“Dollars”, “Dollar” and “$” means the lawful currency of the United States of America.

“Eligible Account” means an account established by and with an Eligible Institution acting at the request of the Security Agent, with respect to which such Eligible Institution agrees, for all purposes of the UCC including Article 8 thereof, that (a) such account shall be a “securities account” (as defined in Section 8-501 of the UCC), (b) all property (other than cash) credited to such account shall be treated as a “financial asset” (as defined in Section 8-102(9) of the UCC), (c) the Security Agent shall be the “entitlement holder” (as defined in Section 8-102(7) of the UCC) in respect of such account, (d) it will comply with all entitlement orders issued by the Security Agent to the exclusion of the Borrower, and (e) the “securities intermediary jurisdiction” (under Section 8-110(e) of the UCC) shall be the State of New York.

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“Eligible Institution” means a depository institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any U.S. branch of a foreign bank), which has a long-term unsecured debt rating from Moody’s of at least A2 and S&P of at least A, or its equivalent.

“Engine” means (i) each of the two (2) Pratt & Whitney (also shown as PRATT & WHITNEY on the International Registry drop-down menu) Model PW4060 (also shown as PW4000 94 on the International Registry drop-down menu) engines listed by Engine Manufacturer’s Serial Numbers in Exhibit A, whether or not from time to time installed on the Airframe or any other airframe; (ii) any Replacement Engine which may from time to time be substituted for any Engine pursuant to the terms hereof; and (iii) in each case, any and all related Parts.  The term “Engines” means, as of any date of determination, both Engines then subject to the lien hereof.  At such time as a Replacement Engine shall be substituted for an Engine pursuant to the terms hereof, such replaced Engine shall cease to be an Engine hereunder.

“Engine Manufacturer” means United Technologies Corporation, Pratt & Whitney Division, a Delaware corporation.

“Estate” is defined in the granting clause hereof.

“Event of Default” is defined in the Loan Agreement.

“Event of Loss” with respect to the Aircraft, Airframe, or any Engine means any of the following events with respect to such property:  (i) the loss of such property, or of the use thereof, due to the destruction of or damage to such property which renders repair uneconomical or which renders such property permanently unfit for normal use by the Borrower for any reason whatsoever; (ii) any damage to such property which results in the receipt of insurance proceeds with respect to such property on the basis of an actual, constructive or compromised total loss; (iii) theft, hijacking, disappearance or requisition for use or hire of such property which deprives the Borrower of possession and/or use of such property for a period in excess of 180 consecutive days, other than a requisition of use (but not title) by the U.S. Government or any agency or instrumentality thereof which bears the full faith and credit of the U.S. Government (it being understood that activation of the Aircraft under CRAF is not to be regarded as a “confiscation, condemnation, seizure or requisition for use of hire”); (iv) the confiscation, condemnation, or seizure, or requisition of title or other compulsory acquisition of title for any reason, of such property by any governmental or purported governmental authority (other than a requisition of use (but not title) by a Permitted Government Entity or any agency or instrumentality thereof which bears the full faith and credit of such Permitted Government Entity); (v) as a result of any law, rule, regulation, order or other action by the FAA or other similar governmental body of the government of registry of the Aircraft having jurisdiction, use of such type of property in the normal course of the business of air transportation shall have been prohibited for a period of twelve (12) consecutive months, or for such longer period, up to a maximum of six (6) additional months, so long as the Borrower is diligently attempting to bring the Aircraft, Airframe or any such Engine into conformity with such law, rule or regulation, and (vi) any event treated as an Event of Loss pursuant to Section 3.03(d) hereof.

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An Event of Loss with respect to the Aircraft shall be deemed to have occurred if an Event of Loss occurs with respect to the Airframe.

“Expense” or “Expenses” means any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, out of pocket costs, expenses and disbursements (including reasonable legal fees and expenses) of whatever kind and nature, other than internal costs and expenses.

“FAA Application for Registration” means the application for registration of the Aircraft in the name of the Borrower filed with the FAA.

“FAA Bill of Sale” means a bill of sale conveying the Aircraft from the Seller to the Borrower on AC Form 8050-2 or such other form as may be approved by the FAA.

“Federal Aviation Act” means subtitle VII of Title 49 of the United States Code, or any successor provision.

“Federal Aviation Administration” and “FAA” mean the United States Federal Aviation Administration and any successor agency or agencies thereto.

“Foreign Air Carrier” means any air carrier which is not a U.S. Air Carrier, which is certificated under the Federal Aviation Act for operations to and from the United States, and which performs maintenance, preventative maintenance and inspections for the Aircraft, Airframe and/or any Engine or engine to standards which are approved by, or which are substantially equivalent to those required by, the Federal Aviation Administration, the Civil Aviation Authority of the United Kingdom, the Direction Generale de l’Aviation Civile of the French Republic, the Luftfahrt Bundesamt of the Federal Republic of Germany, the Nederlandse Luchtvaart Authoriteit of the Kingdom of the Netherlands, the Ministry of Transportation of Japan or the Federal Ministry of Transport of Canada (and any agency or instrumentality of the applicable government succeeding to the functions of any of the foregoing entities).

“Funding Date” is defined in the Loan Agreement.

“Inchoate Liens” mean inchoate Liens of the type described in Section 7.01(ii) for Taxes not yet due or being contested in good faith and 7.01(iii) (other than, in the case of said clause (iii), contested Liens).

“Indemnitee” or “Indemnitees” means the Security Agent, the Administrative Agent, the Lenders and each of their respective successors, permitted assigns, directors, officers, and employees.

“International Registry” has the meaning set forth in the Consolidated Text.

“Lease” means any lease agreement permitted by the terms of Section 3.03 hereof.

“Lender” means, at any time, any registered holder of one or more Notes, as reflected in the Note Register, and shall include the Original Lender.

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“Lessee” means any air carrier permitted to lease the Aircraft, the Airframe, or any Engine as provided in Section 3.03 hereof.

“LIBOR Breakage Costs” is defined in the Loan Agreement.

“Lien” means any mortgage, pledge, lien, claim, encumbrance, lease, security interest or other lien of any kind on property.

“Loan” means the money borrowed on the Funding Date by the Borrower from the Lenders.

“Loan Agreement” means that certain Loan Agreement [28139], dated as of December 21, 2006, among the Borrower, the Administrative Agent, the Original Lender, the Lenders and the Security Agent, as such Loan Agreement may be amended, modified or supplemented from time to time pursuant to the applicable provisions thereof.

“Maintenance Program” means the maintenance program for the Aircraft of the Borrower or a Lessee which is approved by the government of registry of the Aircraft.

“Mandatory Modification” is defined in Section 4.03.

“Manufacturer” means The Boeing Company.

“Moody’s” means Moody’s Investor Service, Inc.

“Note” means the Note originally issued pursuant to the Loan Agreement and any Note issued in exchange therefor or replacement thereof.

“Note Register” is defined in the Loan Agreement.

“Optional Modification” is defined in Section 4.03.

“Original Lender” means C.I.T. Leasing Corporation.

“Other Loan Agreement” means each of (a) that certain Loan Agreement [28140] dated on or about the date hereof and (b) that certain Loan Agreement [28141] dated on or about the date hereof, each among the Borrower, the Original Lender, the Security Agent and the Administrative Agent, wherein the Original Lender provides a direct loan to Borrower for the financing of one or more of two (2) other Boeing 767-300ER aircraft, as each such Other Loan Agreement may be amended or supplemented from time to time pursuant to the applicable provisions thereof, provided that at the relevant time such Original Lender remains a “Lender” holding an interest not less than the interest held by “Required Lenders” (as defined in each such Other Loan Agreement) under and as defined in such Other Loan Agreement.

“Other Security Agreement” means each Security Agreement as defined in each Other Loan Agreement.

“Other Notes” means the “Notes” as defined in each Other Loan Agreement.

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“Other Transaction Documents” means the “Transaction Documents” as defined in each Other Loan Agreement.

“Other Secured Obligations” means the “Secured Obligations” as defined in each Other Security Agreement.

“Other Secured Parties” means the “Lenders”, the “Administrative Agent” and the “Security Agent” as defined in each Other Security Agreement.

“Parts” means all appliances, parts, instruments, appurtenances, accessories, furnishings and other equipment of whatever nature (other than complete Engines or engines), which are from time to time incorporated or installed in or attached to the Airframe or any Engine (other than equipment installed pursuant to Section 4.04 hereof) and all such items which are subsequently removed therefrom so long as the Lien of this Security Agreement shall cover the same pursuant to the terms hereof.

“Permitted Government Entity” means (i) the U.S. Government or (ii) the national government of Canada, France, Switzerland, the Netherlands, Germany, the United Kingdom or Japan or any instrumentality or agency thereof that is backed by the full faith and credit of such national government, if the Aircraft is then registered under the laws of such country.

“Permitted Investments” means those investments described in Section 12.01 hereof.

“Permitted Lien” shall have the meaning set forth in Section 7.01 hereof.

“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Potential Default” is defined in the Loan Agreement.

“Prepayment Fee”  is defined in the Loan Agreement.

“Replacement Engine” is defined in Section 5.02.

“Required Lenders” is defined in the Loan Agreement.

“Secured Obligations” is defined in the Granting Clause of this Agreement.

“Section 1110” means 11 U.S.C. § 1110 of the Bankruptcy Code or any successor section of the federal bankruptcy law in effect from time to time.

“Security Agent Liens” means any Lien attributable to the Security Agent with respect to the Aircraft, any interest therein, or any other portion of the Security Agreement Estate, arising as a result of (a) claims against the Security Agent in its individual capacity not related to its interest in the Aircraft or the administration of the Estate pursuant to the Security Agreement, (b) acts of the Security Agent not permitted by, or failure of the Security Agent to take any action required by, the Transaction Documents, (c) Taxes against the Security Agent or any of its

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Affiliates not required to be indemnified by Borrower under the Loan Agreement, or (d) claims against the Security Agent arising out of the transfer by the Security Agent of all or any portion of its interest in the Estate, other than a transfer pursuant to the exercise of remedies set forth in Article IX of the Security Agreement.

“Security Agreement” has the meaning set forth in the introductory paragraph hereof, as the same may be amended, modified or supplemented from time to time.

“Seller” means AWMS I, a Delaware statutory trust.

“S&P “ means Standard and Poor’s Ratings Services.

“Tax” or “Taxes” is defined in the Loan Agreement.

“Threshold Amount” means $500,000

“Transaction Documents” is defined in the Loan Agreement.

“UCC” or “Uniform Commercial Code” is defined in the Loan Agreement.

“U.S.” means the United States of America (including all states and political subdivisions thereof).

“U.S. Air Carrier” means any United States air carrier as to which there is in force a certificate issued pursuant to Section 41102(a) of the Federal Aviation Act, and holding an air carrier operating certificate issued by the Secretary of Transportation pursuant to chapter 447 of title 49 of the U.S. Code (or the equivalent authority issued by the Civil Aeronautics Board under the predecessor regulatory laws, rules and regulations) for aircraft capable of carrying 10 or more individuals or 6,000 pounds or more of cargo or which may operate as an air carrier by certification or otherwise under any successor or substitute provisions therefor.

“U.S. Government” means the federal government of the United States, or any instrumentality or agency thereof the obligations of which are guaranteed by the full faith and credit of the federal government of the United States.

“War Risk Insurance” means war risk and allied perils insurance covering (i) hull risks in respect of the Aircraft and (ii) liability risks in respect of the Aircraft.

“Warranty Bill of Sale” is defined in the Loan Agreement.

“Wet Lease” means any arrangement whereby the Borrower agrees to furnish the Airframe, Engines or engines installed thereon to a third party pursuant to which such Airframe, Engines or engines (i) are operated by pilots who are regular employees of the Borrower, and (ii) such property is maintained by the Borrower.

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ARTICLE II

[RESERVED]

ARTICLE III

REGISTRATION AND MAINTENANCE; OPERATION; POSSESSION AND LEASES; INSIGNIA

Section 3.01         Registration and Maintenance.  The Borrower shall:  (1) (a) on the Funding Date, cause the Aircraft to be duly registered in its name and, at all times thereafter, cause the Aircraft to remain duly registered in the United States of America in its name under the Federal Aviation Act (except to the extent that the Aircraft is registered in another country pursuant to the terms of Section 3.03(g) hereof) and (b) on the Funding Date, cause this Security Agreement to be duly filed for recording with the FAA and cause the international interest granted in the Airframe and Engines pursuant to the Security Agreement to be registered pursuant to the Cape Town Convention, subject to the Security Agent providing its consent to the International Registry with respect thereto, and, at all times thereafter, so long as any Note shall be outstanding or any amount shall be owing to any Lender, cause the Security Agreement to be maintained of record as a first priority (subject to Permitted Liens) and perfected mortgage on the Aircraft (or, in the case of registration of the Aircraft outside of the United States, cause to be in force and effect documentation appropriate for that jurisdiction that protects the interests of the Lenders on a first priority (subject to Permitted Liens) and perfected basis, including, without limitation, pursuant to the Cape Town Convention, if applicable); (2) maintain, service, repair, and overhaul (or cause to be maintained, serviced, repaired, and overhauled) the Aircraft (and any engine which is not an Engine but which is installed on the Aircraft) (a) so as to keep the Aircraft in as good an operating condition as when delivered to the Borrower by the Seller (ordinary wear and tear excepted) and so as to keep the Aircraft in such condition as may be necessary to enable the airworthiness certification for the Aircraft to be maintained in good standing at all times under the Federal Aviation Act (or under the applicable requirements of another country of registry) except when (i) the Aircraft is being stored and is not operational, provided, however, during such period of time the Airframe and each Engine (as applicable) shall be maintained in compliance with a storage maintenance program applicable to the Airframe and Engines and approved by the Manufacturer, the Engine Manufacturer and the FAA, (ii) the Aircraft is being serviced, repaired, maintained, overhauled, tested or modified, in each case in compliance with the terms hereof, or (iii)  laws or regulations affecting airworthiness are being contested in good faith and by appropriate proceedings so long as such proceedings do not materially adversely affect the Security Agent or its interest in the Aircraft, and (b) in accordance with the Maintenance Program for the Aircraft and except during periods when a Lease is in effect, the same standards as the Borrower uses with respect to aircraft of similar size in its fleet and, during a period when a Lease is in effect, the same standards used by the Lessee thereunder with respect to similar aircraft of similar size in its fleet and operated by such Lessee in similar circumstances; and (3) maintain or cause to be maintained in English all records, logs and other materials required to be maintained in respect of the Aircraft by the FAA and the applicable regulatory agency or body of any other jurisdiction in which the Aircraft may then be registered.

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Section 3.02         Operation.  The Borrower will not (and will not permit any Lessee to) maintain, use, service, repair, overhaul or operate the Aircraft in violation of any law, rule, regulation, treaty, or order of any government or governmental authority (domestic or foreign) having jurisdiction over such activity, or in violation of any airworthiness certificate, license or registration relating to the Aircraft issued by any such authority, unless (i) the Borrower or any Lessee is contesting in good faith the validity or application of any such law, rule, regulation, treaty or order, or requirement under any certificate, license or registration, so long as such contest does not involve a material risk of the sale, forfeiture or loss of the Aircraft, the Airframe, any Engine, or the Security Agent’s interest therein or any imposition of material civil or any criminal penalties against Security Agent or any Lender or (ii) it is not possible for the Borrower (or a Lessee) to comply with the laws of a jurisdiction other than the United States (or other than any jurisdiction in which the Aircraft is then registered) because of a conflict with the applicable laws of the United States (or such jurisdiction in which the Aircraft is then registered), so long as the failure to comply with the laws of such jurisdiction does not involve a material risk of the sale, forfeiture or loss of the Aircraft, Airframe, or any Engine or the Security Agent’s interest therein or any imposition of material civil or any criminal penalties against Security Agent or any Lender.  The Borrower will not operate or fly the Aircraft (i) in or to any war zone or any area of recognized hostility if the indemnities specified in Section 6.06 or War Risk Insurance, or some combination thereof, has not been obtained, or (ii) in any area excluded from coverage by any insurance required to be maintained by the terms of Article VI (or any indemnity issued pursuant to Section 6.06 hereof in lieu thereof).

Section 3.03         Possession and Leases.  The Borrower will not, without the prior written consent of the Security Agent, lease or otherwise in any manner deliver, transfer or relinquish possession of the Airframe or any Engine or install or permit any Engine to be installed on any airframe other than the Airframe; provided that so long as no Event of Default shall have occurred and be continuing at the time of such Lease, delivery, transfer or relinquishment of possession or installation, the Borrower may, without the prior written consent of the Security Agent:

(a)           subject or permit any Lessee to subject any Engine to normal interchange agreements or to normal pooling or similar arrangements, in each case customary in the airline industry and entered into by the Borrower (or any Lessee) in the ordinary course of its business with (x) a U.S. Air Carrier or (y) in connection with any Lease permitted hereby, any air carrier domiciled in a country listed on Exhibit B or any other air carrier approved in writing by the Security Agent, which approved U.S. Air Carrier shall not then be subject to a proceeding or final order under applicable bankruptcy, insolvency or reorganization laws unless the bankruptcy court or other government entity has entered an order or ruling approving normal interchange, pooling or similar arrangements; provided that (i) no such agreement or arrangement contemplates or requires the transfer of title to the Airframe or any Engine and (ii) if the Borrower’s title to any Engine shall be divested under any such agreement or arrangement, such divestiture shall be deemed to be an Event of Loss with respect to such Engine and the Borrower shall (or shall cause any Lessee to) comply with Section 5.02 hereof in respect thereof;

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(b)           deliver or permit any Lessee to deliver possession of the Airframe or any Engine (i) to any Person for testing, service, repair, maintenance or overhaul work on the Airframe or any Engine or for alterations or modifications in or additions to the Airframe or Engine(s), or (ii) to any Person for the purpose of transport to a Person referred to in the preceding clause (i);

(c)           install or permit Lessee to install an Engine on (1) an airframe owned by the Borrower or such Lessee, free and clear of all Liens, except (i) Permitted Liens and those that do not apply to such Engine and (ii) the rights of third parties under normal interchange or pooling agreements and arrangements which are customary in the airline industry and do not contemplate or require the transfer of title to such Engine or (2) an airframe owned by the Borrower (or any Lessee), leased to the Borrower (or any Lessee), or owned or purchased by the Borrower (or any Lessee) subject to a conditional sale or other security agreement, provided that (A) such airframe is free and clear of all Liens, except (i) in the case of airframes leased to the Borrower (or any Lessee) or owned or purchased by the Borrower (or any Lessee) subject to a conditional sale or other security agreement, the rights of the parties to the lease or conditional sale agreement or other security agreement covering such airframe, or their assignee, (ii) Permitted Liens, and (iii) the rights of other air carriers under normal interchange agreements which are customary in the airline industry and do not contemplate or require the transfer of title to the Engine, and (B) any such lease, conditional sale or other security agreement provides that such Engine shall not become subject to the Lien of such lease, conditional sale or other security agreement, notwithstanding the installation thereof on such airframe, and the inclusion in such agreement of a provision similar to the last paragraph of this Section 3.03 shall satisfy such requirement;

(d)           install or permit Lessee to install an Engine on an airframe owned by the Borrower or Lessee, leased to the Borrower or purchased by the Borrower or Lessee subject to a conditional sale or other security agreement under circumstances where paragraph 3.03(c) above is inapplicable, provided that such installation shall be deemed an Event of Loss with respect to such Engine and the Borrower shall comply with Section 5.02 hereof in respect thereof, the Security Agent not intending hereby to waive any right or interest it may have to or in such Engine under applicable law until compliance by the Borrower with such Section 5.02;

(e)           transfer or permit any Lessee to transfer possession of the Airframe or any Engine to the United States of America or any instrumentality or agency thereof pursuant to CRAF so long as the Borrower (or such Lessee) shall promptly notify the Security Agent upon transferring possession of the Airframe or any Engine to the United States of America or any agency or instrumentality thereof pursuant to such program and provide the Security Agent with the name and address of the Contracting Office Representative for the Military Aircraft Command of the United States Air Force to whom notice must be given in the event the Security Agent desires to give notice as provided in Article IX hereof;

(f)            transfer or permit any Lessee to transfer possession of the Airframe, any Engine to the United States of America or any instrumentality or agency thereof which bears the full faith and credit of the United States of America; and

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(g)           provided that no Potential Default or Event of Default has occurred and is continuing or would result therefrom, and upon no less than ten (10) days prior written notice to the Security Agent, enter into a lease of the Aircraft or an Engine with:  (a) any U.S. Air Carrier not then subject to bankruptcy, reorganization or insolvency proceedings unless the bankruptcy court or other government entity has entered an order or ruling approving entry into such lease or similar arrangement; (b) any non-U.S. air carrier that is a Foreign Air Carrier and is organized under the laws of and is principally based in and a domiciliary of a country listed in Exhibit B hereto not then subject to bankruptcy, reorganization or insolvency proceedings and if at the time of such lease the United States of America maintains normal diplomatic relations with the country in which such air carrier is based and, in the case of this clause (b), the Security Agent shall have received evidence reasonably satisfactory to it (which evidence may consist of one or more legal opinions in form and substance, and from such counsel, as may be reasonably acceptable to the Security Agent) that:  (1) all necessary governmental approvals required for such Aircraft or Engine to be imported, and if and to the extent it is customary for prudent international operating leasing companies to obtain the same in such jurisdiction, exported from the applicable country of domicile upon repossession of such leased equipment by the Security Agent (and the Borrower as lessor) shall have been obtained prior to commencement of any such lease; (2) the insurance requirements of Article VI are satisfied; (3) it is not necessary for the Security Agent or any Lender to register or qualify to do business in such jurisdiction solely as a result of the proposed lease; (4) the Security Agent’s Lien on such Aircraft or Engine, and in such Lease, will be recognized; (5) the laws of such jurisdiction of domicile require fair compensation by the government of such jurisdiction payable in a currency freely convertible into Dollars for the loss of the title to such Aircraft or Engine in the event of the requisition by such government of title; (6) the agreement of such non-U.S. air carrier that its rights under the Lease are subject and subordinate to all of the terms of this Security Agreement is enforceable against such non-U.S. air carrier under applicable law; (7) there exist no possessory rights in favor of such Lessee under the laws of such jurisdiction which would, upon bankruptcy of or other default by the Borrower or Lessee, prevent or unreasonably delay the return or repossession of such Aircraft or Engine to the Borrower or the Security Agent in accordance with and when permitted by the terms of Article IX hereof upon the exercise by the Security Agent of remedies under Article IX hereof; (8) if the Lessee under such lease is a governmental entity, such lessee has waived all rights of sovereign immunity; (9) if such Aircraft is being reregistered or has been reregistered, such matters described in Section 3.01 as the Security Agent reasonably deems applicable to such Lease transaction shall have been accomplished; and (10) the other actions required elsewhere under this Section 3.03(g) shall have been accomplished.  The currency of payments under such Lease must be Dollars or a currency freely convertible into Dollars.  Notwithstanding the foregoing, no Engine may be subject to a Lease unless the associated Airframe is the subject of the same Lease without the prior written consent of the Security Agent.  If the Lessee is a U.S. Air Carrier, the Borrower must be entitled as lessor to the benefits of §1110 of the Bankruptcy Code with respect to the Aircraft in connection with a proceeding under Chapter 11 of the Bankruptcy Code in which the Lessee is the debtor.

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The rights of any Lessee or other transferee who receives possession by reason of a transfer permitted by this Section 3.03 (other than the transfer of an Engine deemed an Event of Loss) shall be subject and subordinate to, and any Lease permitted by this Section 3.03, shall expressly provide that it is subject and subordinate to, all the terms of this Security Agreement, including, without limitation, the covenants contained in this Security Agreement, including the inspection rights and the Security Agent’s right to repossess the Aircraft and to avoid and terminate any Lease upon any Event of Default; provided that in the case of the use of the Aircraft in CRAF the subject and subordinate requirements herein shall be subject to the notice specified in Article IX and other requirements of the CRAF program.  The Borrower shall remain primarily liable hereunder for the performance of all of the terms of this Security Agreement (including in the case of any Lease hereunder), and the terms of any such Lease shall not permit any Lessee to take any action not permitted to be taken by the Borrower hereunder with respect to the leased Aircraft or Engine, shall permit the Borrower to cancel the Lease and repossess the Aircraft upon an event of default thereunder, shall prohibit any sub-leasing thereunder and may permit the Borrower to cure any default by the Lessee; provided, however, that the Borrower may procure such performance from any Lessee pursuant to the relevant Lease, and the Security Agent hereby agrees to accept such performance by such Lessee in satisfaction of the Borrower’s obligations hereunder to the extent such performance, in accordance with this Security Agreement, is received by the Security Agent; and provided further that all rights accruing hereunder to the Borrower (including, without limitation, the right to contest any law as provided in Section 3.02, the right to relinquish possession of the Aircraft as provided in Section 3.03, the right to subject Parts to pooling arrangements as provided in Section 4.02, the right to make alterations, modifications and additions as provided in Section 4.03 (except that no Lessee shall be entitled to reduce the value of the Aircraft by utilizing the “obsolete parts” provision therein) and the right to create a Permitted Lien as provided in Section 7.01) shall likewise accrue to such Lessee to the extent the Borrower so permits and to the extent such rights may be subject to any limitation or conditions herein.

The Borrower shall provide to the Security Agent a certified true and correct copy of any Lease that is for a term of six (6) months or greater promptly after it is signed.

Any Wet Lease under which the Borrower maintains operational control of the Aircraft shall not constitute a Lease or other delivery, transfer or relinquishment of possession for purposes of this Section 3.03.

The Borrower shall confirm the assignment hereunder of each Lease with a term in excess of six (6) months (including pursuant to any voluntary renewals and extensions or rights to renew or extend) to the Security Agent as security for the obligations secured hereby by an instrument of assignment which shall be in form and substance reasonably satisfactory to the Security Agent and shall provide that so long as no Potential Default or Event of Default shall have occurred and be continuing, all payments made under such Lease shall be paid to the Borrower and, during any period when a Potential Default or Event of Default shall have occurred and be continuing, shall be paid to the Security Agent to be held as collateral for the obligations secured hereby.  Unless a Potential Default or Event of Default shall have occurred and be continuing, the Borrower shall be entitled to exercise all rights as lessor under any Lease, including with respect to any amendment thereto or any defaults thereunder, in accordance with this Security Agreement.  During the existence of any Event of Default, the Security Agent, to the exclusion of the Borrower, shall be entitled to exercise all rights and remedies as lessor under any Lease that has been assigned, including with respect to any amendment thereto or any defaults thereunder.

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The Security Agent agrees, for the benefit of the Borrower and for the benefit of any mortgagee or other holder of a security interest in any engine owned by the Borrower, any lessor of any engine leased to the Borrower and any conditional vendor of any engine purchased by the Borrower subject to a conditional sale agreement or any other security agreement, that no interest shall be created hereunder in any engine so owned, leased or purchased and that neither the Security Agent nor its successors or assigns will acquire or claim, as against the Borrower or any such mortgagee, lessor or conditional vendor or other holder of a security interest or interest in such engine as the result of such engine being installed on the Airframe; provided, however, that such agreement of the Security Agent shall not be for the benefit of any lessor or secured party of any airframe leased to the Borrower or purchased by the Borrower subject to a conditional sale or other security agreement or for the benefit of any mortgagee of or any other holder of a security interest in an airframe owned by the Borrower, unless such lessor, conditional vendor, other secured party or mortgagee has agreed (which agreement may be contained in such lease, conditional sale or other security agreement or mortgage and may consist of a paragraph similar to this paragraph) that neither it nor its successors or assigns will acquire, as against the Security Agent, any right, title or interest in an Engine as a result of such Engine being installed on such airframe.

During the term of any Lease, the Borrower shall continue to take all actions which are necessary, reasonably advisable or customary for secured aircraft lenders to continue the Security Agent’s security interest in the Aircraft, Airframe and Engines, and any Lease which is required to be assigned hereunder and all necessary, reasonably advisable or customary documents shall be duly filed, registered or recorded in such public offices as may be necessary, reasonably advisable or customary for secured aircraft lenders to fully preserve and perfect the priority of the security interest of the Security Agent in the Aircraft, Airframe and Engines and such Lease.  With respect to any such Lease to which the Cape Town Convention is applicable as provided in Article 3 of the Cape Town Convention (whether in respect of both the Airframe and an Engine or only the Airframe), (A) the Borrower agrees to have registered with the International Registry a collateral assignment by the Borrower of such International Interests attributable to such Lease and (B) the Borrower and the Security Agent shall have received a favorable opinion of counsel (which counsel and opinion are reasonably satisfactory to the Security Agent), and a supporting registry search certificate issued by the International Registry, regarding such registrations.  The Security Agent agrees that with respect to any Lease assigned to the Security Agent as provided herein, upon termination of such Lease, the Security Agent shall assign or consent to the assignment of the International Interest, if any, attributable to such Lease to the Borrower, or discharge the assignment, as appropriate.

The Borrower shall pay on demand all reasonable costs and expenses incurred by the Security Agent or any Lender in connection with any Lease of the Aircraft, including all reasonable fees and expenses of legal counsel to the Security Agent in the United States and in each other applicable jurisdiction.

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Section 3.04         Insignia.  On or prior to the Funding Date, or as soon thereafter as reasonably practicable, the Borrower agrees to affix and maintain (or cause to be affixed and maintained) in the cockpit of the Airframe and on each Engine (subject to temporary removal during maintenance) a nameplate bearing the inscription:

Mortgaged to C.I.T. Leasing Corporation, as Security Agent

(such nameplate to be replaced, if necessary, with a nameplate reflecting the name of any successor to the Security Agent as permitted under the Transaction Documents).

Nothing herein contained shall prohibit the Borrower (or any Lessee) from placing its customary colors and insignia on the Airframe or any Engine or from otherwise operating the Aircraft in its livery.

ARTICLE IV

REPLACEMENT AND POOLING OF PARTS; ALTERATIONS, MODIFICATIONS AND ADDITIONS

Section 4.01         Replacement of Parts.  The Borrower will promptly replace or cause to be replaced all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, except as otherwise provided in Section 4.03.  In addition, the Borrower may, at its own cost and expense, or may permit a Lessee at its own cost and expense to, remove (or cause to be removed) in the ordinary course of maintenance, service, repair, overhaul or testing any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use; provided, however, that the Borrower, except as otherwise provided herein, at its own cost and expense, will, or will cause, a Lessee at its own cost and expense to, replace such Parts as promptly as reasonably practicable.  All replacement parts (other than replacement parts temporarily installed as provided in Section 4.02) shall be free and clear of all Liens (except Permitted Liens and any arrangement permitted by Section 4.02), and shall be in as good an operating condition, and shall have a value and utility substantially equal to, the Parts replaced, assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof.  All Parts at any time removed from the Airframe or any Engine shall remain subject to the Lien of this Security Agreement, no matter where located, until such time as such Parts shall be replaced by parts which meet the requirements for replacement parts specified above.  Immediately, upon any replacement part becoming incorporated or installed in or attached to the Airframe or any Engine, without further act (subject only to Permitted Liens and any arrangement permitted by Section 4.02 hereof), (i) such replacement part shall become subject to the Lien of this Security Agreement and be deemed a Part for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to the Airframe or such Engine and (ii) the replaced Part shall no longer be deemed a Part hereunder and shall be free and clear of the Lien of this Security Agreement.

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Section 4.02         Pooling of Parts; Temporary Replacement Parts.  Any Part removed from the Airframe or any Engine as provided in Section 4.01 hereof may be subjected by the Borrower (or any Lessee) to a pooling arrangement of the type which is permitted for Engines by paragraph 3.03(a); provided that the part replacing such removed Part shall be incorporated or installed in or attached to such Airframe or Engine in accordance with Section 4.01 as promptly as practicable after the removal of such removed Part.  In addition, the Borrower (or any Lessee) may use temporary parts or pooled parts on the Aircraft as temporary replacements for Parts, provided that the Borrower (or any Lessee) as promptly thereafter as reasonably practicable, either (1) causes such pooled or temporary replacement part to become subject to the Lien of this Security Agreement free and clear of all Liens other than Permitted Liens or (2) replaces such replacement part with a further replacement part owned by the Borrower (or any Lessee) which meets the requirements of Section 4.01 and which shall become subject to the Lien of this Security Agreement, free and clear of all Liens other than Permitted Liens.

Section 4.03         Alterations, Modifications and Additions.  The Borrower will make (or cause to be made) such alterations, modifications and additions (each, a “Mandatory Modification”) to the Airframe and Engines as may be required to meet the applicable standards of the FAA and any other regulatory agency or body of the jurisdiction in which the Aircraft may be registered except when (i) the Aircraft is being temporarily stored and is not operational, or (ii) the requirement to make such Mandatory Modification is  being contested in good faith and by appropriate proceedings so long as such proceedings do not materially adversely affect the Security Agent or its interest in the Aircraft.  In addition, the Borrower, at its own expense may from time to time make (or permit a Lessee to make) such alterations and modifications in and additions to the Airframe or any Engine (each, an “Optional Modification”) as the Borrower may deem desirable in the proper conduct of its business, including removal of Parts which the Borrower (or Lessee) deems to be obsolete or no longer suitable or appropriate for use on the Airframe or such Engine (“Obsolete Parts”); provided that no such alteration, modification, removal or addition impairs the condition or airworthiness of the Airframe or such Engine, or materially diminishes the value, utility and remaining useful life of the Airframe or such Engine below the value, utility or remaining useful life thereof immediately prior to such Optional Modification (assuming the Airframe or such Engine was in the condition required by this Security Agreement immediately prior to such Optional Modification).  All parts incorporated or installed in or attached or added to the Airframe or an Engine as the result of such alteration, modification or addition (except those parts which the Borrower has leased from others and Parts which may be removed by the Borrower pursuant to the next sentence) (the “Additional Part” or “Additional Parts”) shall, without further act, become subject to the Lien of this Security Agreement.  Notwithstanding the foregoing, the Borrower (or Lessee) may remove any Additional Part, provided that such Additional Part (i) is in addition to, and not in replacement of or substitution for, any Part originally incorporated or installed in or attached to the Airframe or any Engine at the time of delivery thereof hereunder or any Part in replacement of or substitution for any such Part, (ii) is not required to be incorporated or installed in or attached or added to the Airframe or any Engine pursuant to the terms of Article III hereof or the first sentence of this Section 4.03, and (iii) can be removed from the Airframe or such Engine without impairing the airworthiness of the Airframe or such Engine or materially diminishing the value, utility and remaining useful life of the Airframe or such Engine required to be maintained pursuant to this Security Agreement which the Airframe or such Engine would have had at such time had such removal not occurred and such Additional Part had not been incorporated or installed in or attached to the Airframe or any Engine.  Upon the removal by the Borrower or a Lessee of any Removable Part or Obsolete Part as provided above, such Part shall no longer be deemed a Part hereunder and shall be free and clear of the Lien of this Security Agreement.

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Section 4.04         Improvements Owned by Others.  Notwithstanding any other provision of this Security Agreement, the Borrower may install, have installed or permit to be installed in the Aircraft audio-visual, entertainment, telephonic or other equipment owned by third parties and leased or otherwise furnished to the Borrower in the ordinary course of business, provided that such equipment meets all requirements for removal of Additional Parts as specified in Section 4.03, and the Lien of this Security Agreement shall not attach thereto and the rights of the owners therein shall not constitute a default under the Transaction Documents.

ARTICLE V

LOSS, DESTRUCTION, REQUISITION, ETC.

Section 5.01         Event of Loss With Respect to the Aircraft.  (a)  Upon the occurrence of an Event of Loss with respect to the Aircraft or the Airframe, the Borrower shall forthwith but in any event within fifteen (15) days of such occurrence give each Lender and the Security Agent written notice of such Event of Loss.

(b)           In connection with an Event of Loss with respect to the Aircraft or the Airframe, on or before the Business Day next following the earlier of (x) the one hundred twentieth (120th) day following the occurrence of such Event of Loss or (y) the third (3rd) Business Day following the receipt of the insurance proceeds in respect of such Event of Loss, the Borrower shall pay or cause to be paid to the Security Agent an amount equal to the aggregate amount of outstanding principal, interest and other amounts then due on or in respect of the Notes and any other Transaction Document.

Section 5.02         Event of Loss With Respect to an Engine.  (a)  Upon the occurrence of an Event of Loss with respect to an Engine under circumstances in which there has not occurred an Event of Loss with respect to the Airframe, the Borrower shall give the Security Agent prompt (but in any event within fifteen (15) days) written notice thereof.  Within one hundred twenty (120) days after the occurrence of such Event of Loss (or, in the case of an Event of Loss described in clause (vi) of the definition thereof, within one hundred twenty (120) days after the Chief Financial Officer, Treasurer, any Vice President or other officer of the Borrower has received Actual Knowledge of such Event of Loss), as replacement for the Engine with respect to which such Event of Loss occurred, the Borrower shall subject to the Lien of this Security Agreement another Pratt & Whitney (also shown as PRATT & WHITNEY on the International Registry drop-down menu) Model PW4060 (also shown as PW 4000 94 on the International Registry drop-down menu) engine (or an engine of the same manufacturer of an equivalent or an improved model and suitable for installation and use on the Airframe and compatible with the other Engine mortgaged hereunder) (a “Replacement Engine”), in each case, free and clear of all Liens (other than Permitted Liens) and having a value, utility and remaining useful life (without regard to hours, cycles and maintenance schedule) at least equal to the Engine subject to such Event of Loss, assuming such Engine was maintained in accordance with the provisions of this Security Agreement.

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(b)           [Intentionally omitted.]

(c)           Prior to or at the time of any substitution pursuant to Section 5.02(a) or 5.02(b), the Borrower will (i) cause a Security Agreement supplement with respect to such Replacement Engine to be duly executed and filed for recording pursuant to the Federal Aviation Act, or the applicable laws, rules and regulations of any other jurisdiction in which the Airframe may then be registered, and register or consent to the registration with the International Registry of the international interest in such Replacement Engine for the benefit of the Security Agent under this Security Agreement and the Security Agreement supplement referred to above (and the sale to Borrower of such Replacement Engine shall have been registered on the International Registry); (ii) furnish the Security Agent with an opinion or opinions of the Borrower’s counsel with a supporting priority search certificate issued by the International Registry to the effect that such Replacement Engine is free and clear of all Liens of record with the FAA and International Registry (other than Permitted Liens), and that upon execution and filing of the Security Agreement Supplement or other required document (which Borrower has caused to be prepared) the Replacement Engine will be subject to the Lien of the Security Agreement on a first priority (subject to Permitted Liens) and perfected basis (or, if the Aircraft is not then subject to U.S. registry, having the same priority and perfection required to be maintained under the Transaction Documents in respect of the property being so replaced) and that the registrations with the International Registry required under the preceding clause (i) have been made; (iii) furnish a certificate signed by a duly authorized officer of the Borrower stating (A) a description of the Engine suffering the Event of Loss, which shall be identified by manufacturer’s serial number, (B) a description of the Replacement Engine (including the manufacturer’s name and serial number), (C) that on the date of the Security Agreement supplement relating to the Replacement Engine, the Borrower will be the owner of such Replacement Engine, free and clear of all Liens except Permitted Liens and (D) that such Replacement Engine will on such date meet the requirements of Section 5.02(a) hereof; (iv) furnish the appropriate instruments, in form and substance reasonably satisfactory to the Security Agent, assigning to the Security Agent as additional collateral under this Security Agreement the benefit of manufacturer’s warranties with respect to such Replacement Engine and a certificate from a firm of independent aircraft appraisers reasonably satisfactory to the Security Agent confirming that such Replacement Engine has at least the value, utility and remaining useful life and is in as good an operating condition as the corresponding Engine subject to such Event of Loss (in each case without taking into account hours, cycles and maintenance schedule); and (v) furnish the Security Agent with a certificate of its regularly retained independent insurance broker to the effect that the insurance provisions of Article VI with respect to such Replacement Engine have been complied with.  Upon compliance by the Borrower with all of the terms of this Section 5.02(c), such Engine suffering the Event of Loss shall thereupon cease to be an Engine secured hereunder, and, at the Borrower’s expense, the Security Agent will execute such documents and provide its consent to the International Registry as Borrower shall request to release such Engine from the Lien of this Security Agreement.  For all purposes hereof, each such Replacement Engine shall, after such compliance, be deemed an “Engine” hereunder.

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Section 5.03         Application of Payments.  Any payments (other than insurance proceeds in respect of damage or loss not constituting an Event of Loss, the application of which is provided for in Article VI or any insurance proceeds in excess of the Secured Obligations) received at any time by the Borrower or the Security Agent from any governmental authority or other Person with respect to an Event of Loss will be applied as follows:

1.             If payments are received with respect to the Airframe (or the Airframe or any Engines or engines then installed thereon), after reimbursement of the Security Agent and the Lenders for reasonable costs and expenses, so much of such payments up to the amount required to be paid by the Borrower pursuant to Section 5.01 shall be paid to the Security Agent and applied in reduction of the Borrower’s obligation to pay such amounts, if not already paid by the Borrower, or, if already paid by the Borrower, shall be applied to reimburse the Borrower for its payment of such amounts, and following the foregoing application, the balance, if any, of such payments shall be paid to the Borrower; and

2.             If such payments are received with respect to an Engine under circumstances contemplated by Section 5.02 hereof, so much of such payments remaining after reimbursement of the Security Agent for reasonable costs and expenses shall be paid over to, or retained by, the Borrower, provided that the Borrower shall have fully performed, or will perform, the terms of Section 5.02(c) with respect to the Event of Loss for which such payments are made.

Section 5.04         Requisition for Use of the Aircraft by the United States Government or the Government of Registry of the Aircraft.  In the event of the requisition for use of the Airframe, the Engines or engines installed on the Airframe by the government of the United States of America or any other government of registry of the Aircraft or any instrumentality or agency of any thereof or a CRAF activation, in either case not constituting an Event of Loss, the Borrower shall promptly notify the Security Agent of such requisition or activation, and all of the Borrower’s obligations under this Security Agreement with respect to the Aircraft shall continue to the same extent as if such requisition or activation had not occurred except to the extent that the performance or observance of any obligation by the Borrower shall have been prevented or delayed by such requisition (it being understood that the foregoing exception shall not diminish the Borrower’s obligations once any such requisitioned Airframe or Engine has been returned to the Borrower).  All payments received by the Security Agent or the Borrower from such government for the use of such Airframe and Engines or engines shall be paid over to, or retained by, the Borrower.  No such requisition shall result in any reduction of any payments or interest on the Notes due to the Lenders under the Transaction Documents.

Section 5.05         Application of Payments During Existence of Potential Defaults or Events of Default.  Any amount referred to in this Article V which is payable to or retainable by the Borrower shall not be paid to or retained by the Borrower if at the time of such payment or retention a Potential Default or an Event of Default shall have occurred and be continuing, but shall be held by or paid over to the Security Agent as security for the obligations of the Borrower (or such Lessee) under this Security Agreement and, if the Security Agent declares this Security Agreement to be in default pursuant to Article IX hereof, applied against the Borrower’s obligations hereunder as and when due.  At such time as there shall not be continuing any such Potential Default or Event of Default, such amount shall be paid to the Borrower to the extent not previously applied in accordance with the preceding sentence.

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ARTICLE VI

INSURANCE

Section 6.01         Borrower’s Obligation to Insure.  Borrower shall comply with, or cause to be complied with, each of the provisions of Annex A, which provisions are hereby incorporated by reference as if set forth in full herein.

Section 6.02         Insurance for Own Account.  Nothing in this Article VI shall limit or prohibit (a) Borrower from maintaining the policies of insurance required under this Article VI with higher limits than those specified in this Article VI or other insurance for its own account or (b) Security Agent or any Lender from obtaining insurance for its own account (and any proceeds payable under such separate insurance shall be payable as provided in the policy relating thereto); provided, however, that no insurance may be obtained or maintained that would limit or otherwise adversely affect the coverage of any insurance required to be obtained or maintained by Borrower pursuant to this Article VI, it being understood that all salvage rights to the Airframe or Engines shall remain with the Borrower’s insurers at all times.

Section 6.03         Application of Insurance Proceeds. (a)  All insurance payments received from policies maintained by the Borrower as the result of the occurrence of an Event of Loss with respect to the Airframe or the Engines (whether or not installed thereon) shall be paid to the Security Agent in an amount equal to the Agreed Value, in the case of an Event of Loss with respect to the Airframe, or an amount equal to the amount specified with respect to each Engine in Annex A hereto, in the case of an Event of Loss with respect to an Engine.  The Security Agent and the Borrower shall proceed diligently and cooperate fully with each other in the recovery of any and all proceeds of insurance applicable thereto.

(b)           All insurance payments resulting from any property damage loss to the Airframe or any Engine or any Part thereof not constituting an Event of Loss with respect thereto (or constituting an Event of Loss solely with respect to an Engine) will be paid to the Security Agent (unless such proceeds do not exceed the Threshold Amount, in which case they will be paid to Borrower) and applied in payment for repairs or for replacement property, if not already paid for by Borrower (or to reimburse Borrower for such repairs or replacements already paid for by Borrower), and any balance remaining with respect to such loss shall be paid to Borrower or as otherwise may be directed by Borrower, provided that any amount which is payable to Borrower under this Section 6.03(b) shall not be paid to Borrower if at the time of such payment a Potential Default or an Event of Default shall have occurred and be continuing, but shall be applied pursuant to Section 6.05 hereof.

Section 6.04         Indemnification by Government in Lieu of Insurance.  Notwithstanding any provisions of this Article VI requiring insurance, the Security Agent agrees to accept, in lieu of insurance against any risk with respect to the Aircraft, indemnification from, or insurance provided by, the government of the United States of America or any agency or instrumentality thereof the obligations of which are supported by the full faith and credit of the government of the United States of America, against such risk in an amount which, when added to the amount of insurance against such risk maintained by the Borrower (or any Lessee) shall be at least equal to the amount of insurance against such risk otherwise required by this Article VI (taking into account self insurance permitted by Annex A).  The Borrower shall furnish to the Security Agent and to the Lenders, in advance of attachment of such indemnity or insurance, a certificate of a responsible financial or legal officer of the Borrower confirming in reasonable detail the amount and scope of such indemnification or insurance and that such indemnification or insurance complies with the preceding sentence.

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Section 6.05         Application of Payments During Existence of a Potential Default or an Event of Default.  Any amount referred to in this Article VI which is payable to or retainable by or to be held for the benefit of the Borrower (or any Lessee) shall not be paid to or retained by or held for the benefit of the Borrower (or any Lessee) if at the time of such payment or retention a Potential Default or an Event of Default shall have occurred and be continuing, but shall be held by or paid over to the Security Agent, as security for the obligations of the Borrower under this Security Agreement and, if the Security Agent shall have declared this Security Agreement to be in default, applied against the Borrower’s obligations hereunder as and when due.  At such time as there shall not be continuing any such Potential Default or Event of Default, such amount shall be paid to the Borrower to the extent not previously applied in accordance with the preceding sentence.

ARTICLE VII

OTHER COVENANTS OF BORROWER

Section 7.01         Liens.  The Borrower will not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Aircraft, Airframe or Engines, Borrower’s title thereto or any of Borrower’s interest therein except (i) the rights of the Borrower as herein provided (including any Lease permitted pursuant to Section 3.03(g)), the Lien hereof and any other rights existing pursuant to the Transaction Documents, (ii) Liens for Taxes of the Borrower (or any Lessee) either not yet due or being contested in good faith by appropriate proceedings, so long as the continuing existence of such Liens during such proceedings do not involve any material risk of the sale, forfeiture or loss of the Airframe or any Engine or any interest therein, (iii) mechanics’, suppliers’, workers’, repairers’, airport operators’, air traffic control authorities’, employees’ or other like Liens arising in the ordinary course of the Borrower’s or any Lessee’s business for amounts that are not overdue or are being contested in good faith by appropriate proceedings, so long as there is not, or the continuing existence of such Liens during such proceedings do not involve, any material risk of sale, forfeiture or loss of the Airframe or any Engine or any interest therein, (iv) Liens arising out of any judgment or award against the Borrower (or any Lessee) so long as within 30 days after entry thereof a stay of execution shall have been entered or such Lien shall have been discharged or vacated, so long as such Liens do not result in a material risk of the sale, forfeiture or loss of the Airframe or any Engine or any interest therein, (v) the rights of others under agreements or arrangements to the extent expressly permitted by the terms of Sections 3.03 or Article IV hereof, (vi) salvage or similar rights of insurers under policies required to be maintained by the Borrower (or Lessee) under Article VI hereof and (vii) any other Lien with respect to which the Borrower (or any Lessee) shall have provided a bond or other security in an amount and under terms reasonably satisfactory to the Security Agent (Liens described in clauses (i) through (vii) being defined as “Permitted Liens”).  The Borrower will promptly, at its own expense, take (or cause to be taken) such actions as may be necessary duly to discharge any Lien not a Permitted Lien if the same shall arise at any time.

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Section 7.02         Inspection.  At all reasonable times while there are Notes outstanding, the Security Agent, or its authorized representatives, may inspect the Aircraft (but in no event more often than once yearly if a Potential Default or Event of Default shall not have occurred and be continuing) and FAA (or other applicable governmental authority of the country of registry) required records of the Borrower (or any Lessee) relating to the maintenance of the Aircraft (at the inspecting party’s expense (other than in the case of an inspection occurring while a Potential Default or an Event of Default has occurred and is continuing, in which case the Borrower shall bear the reasonable cost of such inspection)) and shall keep any information obtained thereby confidential as provided in Section 9.9 of the Loan Agreement.  Any such inspection of the Aircraft shall be upon not less than three (3) Business Days advance notice from such inspecting party to the Borrower, shall be during normal business hours and shall be limited to a visual, walk-around inspection (including on-board inspection), but shall not include opening any panels, bays or the like without the express written consent of the Borrower; provided that, so long as no Potential Default or Event of Default shall have occurred and be continuing, no exercise of such inspection right shall interfere in any material respect with the normal operation or maintenance of the Aircraft by, or the business of, the Borrower (or any Lessee).  Upon the written request of any Lender, Borrower will give, and will use reasonable efforts to cause any Lessee to give, such Lender notice of the next scheduled “C” check or other heavy maintenance visit with respect to the Aircraft or any Engine and afford such Person an opportunity to be present at the same without interfering (so long as no Potential Default or Event of Default has occurred and is continuing) in any material respect with the maintenance, operations or business of the Borrower or such Lessee.  Borrower shall furnish to the Security Agent such additional information concerning the location, condition, use and operation of the Aircraft as the Security Agent may reasonably request.  Neither the Security Agent nor any Lender shall have any duty to make any such inspection nor shall any such Person incur any liability or obligation by reason of not making any such inspection.

Section 7.03         Amendments, Supplements, Etc.  Forthwith upon the execution and delivery of each Security Agreement supplement from time to time required by the terms hereof and upon the execution and delivery of any amendment to this Security Agreement, the Borrower at its own expense will cause such Security Agreement supplement or amendment to be duly filed for recordation, in accordance with the applicable laws of the government of registry of the Aircraft.  In addition, the Borrower will promptly and duly execute and deliver to the Security Agent such further documents and take such further action as the Security Agent may from time to time reasonably request in order to more effectively carry out the intent and purpose of this Security Agreement and the other Transaction Documents and to establish and protect the rights and remedies created or intended to be created in favor of the Security Agent hereunder and to maintain the perfection of the Lien created by this Security Agreement, including, without limitation, if reasonably requested by the Security Agent, at the expense of Borrower, (x) upon preparation and execution by the appropriate party, the filing of all UCC financing and continuation statements and all similar notices required by applicable law at all times to be kept, filed and recorded in such manner and in such places as the Security Agent may reasonably request and (y) the registration or consents to registrations, with the International Registry of international interests granted for the benefit of Security Agent under this Security Agreement and any amendment or supplement hereto.

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ARTICLE VIII

[RESERVED]

ARTICLE IX

REMEDIES

Section 9.01         General; Acceleration.  (a)  If an Event of Default shall have occurred and be continuing and so long as the same shall be continuing unremedied, then and in every such case, the Security Agent may exercise any or all of the rights and powers and pursue any and all of the remedies pursuant to this Article IX; shall have and may exercise all of the rights and remedies of a secured party under the Uniform Commercial Code; and may exercise remedies available under the Cape Town Convention.

(b)           If an Event of Default referred to in Section 7.1(e) or (f) of the Loan Agreement shall have occurred, then and in every such case the unpaid principal of all Notes then outstanding, together with interest accrued but unpaid thereon, and all other amounts due to the holders of the Notes thereunder and hereunder and under the other Transaction Documents, shall, unless the Security Agent acting upon the instructions of the Required Lenders shall otherwise direct, immediately and without further act become due and payable, without presentment, demand, protest or notice, all of which are hereby waived.

(c)           If any other Event of Default shall have occurred and be continuing, then and in every such case, the Security Agent, acting at the direction of the Required Lenders,  may at any time, by written notice or notices to the Borrower, declare all the Notes to be due and payable, whereupon the unpaid principal of all Notes then outstanding, together with accrued but unpaid interest thereon, and all other amounts due to the holders of the Notes thereunder, hereunder and under the other Transaction Documents, shall immediately and without further act become due and payable without presentment, demand, protest or other notice, all of which are hereby waived.

(d)           If the principal of the Notes shall have become due and payable pursuant to this Section 9.01, there shall also become due and payable, to the fullest extent permitted by law, to each holder of a Note upon demand, without presentment, protest or notice, all of which are hereby waived, any LIBOR Breakage Costs payable in connection therewith.

(e)           Subject to the consent of the Required Lenders, each Lender shall be entitled, at any sale pursuant to this Article IX, to credit against any purchase price bid at such sale by such Lender all or any part of the unpaid obligations owing to such Lender and secured by the Lien of this Security Agreement.  The Security Agent and the Lenders shall, upon any such purchase, acquire good title to the property so purchased, to the extent permitted by applicable law, free of all rights of redemption.

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(f)            In addition, the Borrower shall be liable, except as otherwise provided herein and without duplication of amounts payable hereunder, for any and all reasonable and actual legal fees and other costs and expenses incurred by the Security Agent and the Lenders (acting under common counsel) in connection with the enforcement of any of their respective rights and remedies hereunder.

Section 9.02         Repossession and Sale.  At any time during the continuation of an Event of Default, the Security Agent, in addition to any rights it might otherwise have at law, may do either or both of the following:  (a)  upon the written demand of the Security Agent and at the Borrower’s expense, cause the Borrower to return promptly, and the Borrower shall return promptly, all or any part of the Aircraft as the Security Agent may so demand, to the Security Agent at a major airport on the Borrower’s route system in one of the forty eight (48) contiguous states of the United States of America chosen by the Security Agent, or, alternatively, the Security Agent, at its option, may enter upon the premises where all or any part of the Aircraft is located and take immediate possession of and remove the same by summary proceedings or otherwise (and, at the Security Agent’s option, store the same at the Borrower’s premises until disposal thereof by the Security Agent), all without liability accruing to the Security Agent for or by reason of such entry or taking of possession or removal other than for restoration of property damaged by such taking of possession or removal, unless the Borrower does not cooperate in releasing the Aircraft; provided that during any period the Aircraft is activated under CRAF in accordance with the provisions of Section 3.03 hereof and in the possession of the government of the United States of America or an instrumentality or agency thereof, the Security Agent shall not, on account of any Event of Default, be entitled to do any of the following in such manner as to limit the Borrower’s control under this Security Agreement (or any Lessee’s control under any Lease) of the Airframe or any Engine installed thereon, unless at least sixty (60) days’ (or such lesser period as may then be applicable under the Military Airlift Command program of the government of the United States of America) prior written notice of default hereunder shall have been given by the Security Agent by registered or certified mail to the Borrower (and any Lessee) with a copy addressed to the Contracting Office Representative for the Military Airlift Command of the United States Air Force under the contract with the Borrower (or any Lessee) relating to the Aircraft; or (b) with or without taking possession thereof, sell all or any part of the Aircraft at public or private sale, as the Security Agent may determine, or otherwise dispose of, hold, use, operate or lease to others, as the Security Agent, in its sole discretion, may determine, all free and clear of any rights of the Borrower, except as hereinafter set forth in this Article IX.

At any sale of the Aircraft or any part thereof pursuant to this Article IX, the Security Agent and, subject to Section 9.01(e), any Lender, may bid for and purchase such property.  The Security Agent agrees to give the Borrower commercially reasonable notice of the date fixed for any public sale of the Airframe or any Engine or of the date on or after which will occur the execution of any contract providing for any private sale (together with details thereof).  Except as otherwise expressly provided above, no remedy referred to in this Article IX is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to above or otherwise available to the Security Agent at law or in equity; and the exercise or beginning of exercise by the Security Agent of any one or more of such remedies shall not preclude the simultaneous or later exercise by the Security Agent of any or all of such other remedies.  No express or implied waiver by the Security Agent of any Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default.

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Section 9.03 Taking of Aircraft.  (a)  If an Event of Default shall have occurred and be continuing and the Notes have been accelerated pursuant to Section 9.01(b) or 9.01(c) hereof, at the request of the Security Agent the Borrower shall promptly execute and deliver to the Security Agent such instruments of title and other documents as the Security Agent may deem necessary or advisable to enable the Security Agent or an agent or representative designated by the Security Agent, at such time or times and place or places as the Security Agent may specify, to obtain possession of all or any part of the Estate to which the Security Agent shall at the time be entitled hereunder.  If the Borrower shall for any reason fail to execute and deliver such instruments and documents after such request by the Security Agent, the Security Agent may (i) obtain a judgment conferring on the Security Agent the right to immediate possession and requiring the Borrower to execute and deliver such instruments and documents to the Security Agent, to the entry of which judgment the Borrower hereby specifically consents, and (ii) pursue all or part of the Estate wherever such Estate may be found and may enter any of the premises of the Borrower wherever it may be or be supposed to be and search for and take possession of and remove the same.  All reasonable expenses of obtaining such judgment or of pursuing, searching for and taking such property shall, until paid, be secured by the Lien of this Security Agreement.

(b)           Upon every such taking of possession, the Security Agent may, from time to time, at the expense of the Estate, make all such expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Estate, as it may reasonably deem proper.  In each such case, the Security Agent shall have the right to maintain, use, operate, store, lease, control or manage the Estate and to carry on the business and to exercise all rights and powers of the Borrower relating to the Estate, as the Security Agent shall reasonably deem best, including the right to enter into any and all such agreements with respect to the maintenance, insurance, use, operation, storage, leasing, control, management or disposition of the Estate or any part thereof as the Security Agent may reasonably determine; and the Security Agent shall be entitled to collect and receive directly all tolls, rents, revenues, issues, income, products and profits of the Estate and every part thereof.  Such tolls, rents, revenues, issues, income, products and profits shall be applied to pay the expenses of the use, operation, storage, leasing, control, management or disposition of the Estate and of conducting the business thereof, and of all maintenance, repairs, replacements, alterations, additions and improvements, and to make all payments which the Security Agent may be required or may elect to make, if any, for taxes, assessments, insurance or other proper and reasonable charges upon the Estate or any part thereof (including the employment of engineers and accountants to examine, inspect and make reports upon the properties and books and records of the Borrower), and all other payments which the Security Agent may be required or authorized to make under any provision of this, as well as just and reasonable compensation for the services of the Security Agent, and of all persons properly engaged and employed by the Security Agent.

(c)           In connection with any sale or other disposition of the Aircraft or any other part of the Estate, the Security Agent may disclaim or modify any or all of the warranties specified in Section 9-610 of the Uniform Commercial Code as in effect in any relevant jurisdiction at any relevant time, and the Borrower hereby irrevocably acknowledges that such waiver or modification is commercially reasonable.  The Borrower shall be entitled to furnish to any Person to which the Aircraft or other part of the Estate is sold or disposed any such warranty so disclaimed or modified as part of any such sale or disposition.

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Section 9.04 Discontinuance of Proceedings.  In case the Security Agent shall have instituted any proceeding to enforce any right, power or remedy under this Security Agreement by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Security Agent, then and in every such case, the Security Agent and the Borrower shall, subject to any determination in such proceedings, be restored to their former positions and rights hereunder with respect to the Estate, and all rights, remedies and powers of the Security Agent shall continue as if no such proceedings had been instituted.

Section 9.05 Waiver of Past Defaults.  Upon written instructions from the Required Lenders, the Security Agent shall waive any past or continuing Event of Default hereunder and its consequences and upon any such waiver such Event of Default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Security Agreement, but no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon; provided, however, that in the absence of written instructions from all Lenders, the Security Agent shall not waive any Event of Default (i) arising from the Borrower’s failure to pay the principal of, or interest on, or other amounts due under, any Note then outstanding, or (ii) in respect of a covenant or provision hereof which, under the proviso to the first sentence of Section 9.1 to the Loan Agreement, cannot be waived without the consent of each Lender.

Section 9.06 Remedies Cumulative.  Each and every right, power and remedy given to the Security Agent specifically or otherwise in this Security Agreement shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Security Agent, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy.  No delay or omission by the Security Agent in the exercise of any right, remedy or power or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of the Borrower or to be an acquiescence therein.

Section 9.07 Payment After Event of Default, etc.  All payments received and amounts held or realized by the Security Agent after an Event of Default shall have occurred and so long as such Event of Default shall be continuing, or after the Security Agent shall foreclose or enforce this Security Agreement, or after the Notes shall have become due and payable as provided in Section 9.01(b) or (c), as well as all payments or amounts then held by the Security Agent as part of the Estate, shall be promptly distributed by the Security Agent in the following order of priority:

first, so much of such payments or amounts as shall be required to reimburse the Security Agent for any tax, expense, charge or other loss (including, without limitation, all amounts to be expended at the expense of, or charged upon the tolls, rents, revenues,

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issues, income, products and profits of, the property included in the Estate pursuant to Section 9.03(b)) incurred by the Security Agent hereunder (to the extent not previously reimbursed) (including, without limitation, the reasonable expenses of any sale, taking or other proceeding, reasonable attorneys’ fees and expenses, court costs, and any other reasonable expenditures incurred or expenditures or advances made by the Security Agent in the protection, exercise or enforcement of any right, power or remedy or any damages sustained by the Security Agent, liquidated or otherwise, upon such Event of Default) shall be applied by the Security Agent in reimbursement of such expenses;

second, so much of such payments or amounts remaining as shall be required to reimburse the Lenders in full for payments made pursuant to Section 10.03 (to the extent not previously reimbursed) of this Security Agreement shall be distributed to the Lenders, and if the aggregate amount remaining shall be insufficient to reimburse all such payments in full, it shall be distributed ratably, without priority of any Note over any other, in the proportion that the aggregate amount of the unreimbursed payments made by each such Lender pursuant to Section 10.03 of this Security Agreement bears to the aggregate amount of the unreimbursed payments made by all Lenders pursuant to Section 10.03 of this Security Agreement;

third, so much of such payments or amounts remaining as shall be required to pay in full to the Lenders all other amounts payable pursuant to the indemnification provisions of the Loan Agreement or pursuant to any other provision of any Transaction Document and secured hereunder (other than amounts payable pursuant to clause “second” or “fourth” of this Section 9.07) to the Lenders and remaining unpaid, including LIBOR Breakage Costs, shall be distributed to the Lenders, and if the aggregate amount remaining shall be insufficient to pay all such amounts in full, it shall be distributed ratably, without priority of any Note over any other, in the proportion that the aggregate amount due each Lender under this clause “third” bears to the aggregate amount due all Lenders under this clause “third”;

fourth, so much of such payments or amounts remaining as shall be required to pay in full all accrued but unpaid interest to the date of distribution on the Notes, and thereafter the aggregate unpaid principal amount of the Notes, shall be distributed to the Lenders, and if the aggregate amount remaining shall be insufficient to pay all such amounts in full, it shall be distributed ratably, without priority of any one Note over any other, in the proportion that the principal amount of and all accrued but unpaid interest to the date of distribution on, each Note bears to the aggregate principal amount of and all accrued but unpaid interest to the date of distribution on all Notes;

fifth, so much of such payments or amounts remaining as shall be required to pay the corresponding amounts respecting the Other Security Agreements as described in clause “first” above shall be paid to each such Security Agent under such Other Security Agreements;

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sixth, so much of such payments or amounts remaining as shall be required to pay the corresponding amounts respecting the Other Security Agreements as described in clause “second” above shall be paid to each such Security Agent under such Other Security Agreements;

seventh, so much of such payments or amounts remaining as shall be required to pay the corresponding amounts respecting the Other Transaction Documents as described in clause “third” above shall be paid to the holders of the Other Notes under such Other Transaction Documents;

eighth, so much of such payments or amounts remaining as shall be required to pay the corresponding amounts respecting the Other Notes as described in clause “fourth” above shall be paid to the holders of the Other Notes;

ninth, the balance, if any, of such payments or amount remaining thereafter shall be distributed to the Borrower or as a court of competent jurisdiction shall direct.

ARTICLE X

DUTIES OF THE SECURITY AGENT

Section 10.01 Notice of Event of Default.  (a)  In the event the Security Agent shall have Actual Knowledge of an Event of Default or of a Potential Default arising from a failure to pay principal or interest, the Security Agent shall forthwith give facsimile notice thereof to the Borrower and the Lenders (promptly confirmed by mail to such Persons).  Subject to the terms of Sections 9.04 and 10.03, the Security Agent shall take such action, or refrain from taking such action, with respect to any such Event of Default (including with respect to the exercise of any rights or remedies hereunder) as the Security Agent shall be instructed in writing by the Required Lenders.  Subject to the provisions of Section 10.03, if the Security Agent shall not have received instructions as above provided within 20 calendar days after giving notice of such Event of Default to the Lenders, the Security Agent may, subject to instructions thereafter received pursuant to the preceding provisions of this Section 10.01, take such action, or refrain from taking such action, but shall be under no duty to take or refrain from taking any action, with respect to any such Event of Default as it shall determine advisable in the best interests of the Lenders and shall use the same degree of care and skill in connection therewith as a prudent person would use under the circumstances in the conduct of such person’s own affairs; provided that the Security Agent may not sell the Airframe or any Engine without the consent of the Required  Lenders.  In the event the Security Agent shall at any time commence to foreclose or otherwise enforce this Security Agreement, the Security Agent shall forthwith notify the Lenders and the Borrower.  For all purposes of this Security Agreement, in the absence of Actual Knowledge on its part, the Security Agent shall not be deemed to have knowledge of any Potential Default, or any Event of Default unless notified in writing by the Borrower or one or more Lenders.  This Section 10.01, however, is subject to the condition that, if at any time after the principal of the Notes shall have become due and payable pursuant to Article IX and before any judgment or decree for the payment of the money so due, or any thereof, shall be entered, all overdue payments of interest upon the Notes and all other amounts payable under the Notes (except the principal of the Notes which by such declaration shall have become payable) shall have been duly paid, and every other Potential Default and Event of Default with respect to any covenant or provision of this Security Agreement shall have been cured, then and in every such

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case the Required Lenders may (but shall not be obligated to), by written instrument filed with the Security Agent, rescind and annul such acceleration and its consequences; but no such rescission or annulment shall extend to or affect any subsequent Potential Default or Event of Default or impair any right consequent thereon.

(b)           Other Notices.  The Security Agent will furnish to each Lender promptly upon receipt thereof, duplicates or copies of all reports, notices, requests, demands, certificates, financial statements and other instruments furnished to the Security Agent under any Transaction Document to the extent the same shall not have been otherwise directly distributed to the Lenders pursuant to the express provision of any other Transaction Document.

Section 10.02 Action Upon Instructions.  (a)  Subject to the terms of Sections 9.05, 10.01 and 10.03, upon the written instructions at any time and from time to time of the Required Lenders, the Security Agent shall take such of the following actions as may be specified in such instructions:  (i) exercise such election or option, or make such decision or determination, or give such notice, consent, waiver or approval or exercise such right, remedy or power or take such other action hereunder or under any other Transaction Document or in respect of any part or all of the Estate as shall be specified in such instructions and which shall not be inconsistent with the terms hereof; (ii) take such action with respect to, or to preserve or protect, the Estate (including the discharge of Liens) as shall be specified in such instructions and as are consistent with this Security Agreement; and (iii) take such other action in respect of the subject matter of this Security Agreement as is consistent with the terms hereof and the other Transaction Documents.  The Security Agent will authorize and file or cause to be filed such continuation statements with respect to financing statements relating to the security interest created hereunder in the Security Agreement Estate as may be specified from time to time in written instructions of the Required Lenders (which instructions may, by their terms, be operative only at a future date and which shall be accompanied by the execution form of such continuation statement so to be filed).

(b)           If any Event of Default shall have occurred and be continuing, on request of the Required Lenders, and subject to the terms and conditions set forth in this Security Agreement, the Security Agent shall exercise such remedies under Article IX as shall be specified in such request.  The Security Agent agrees to provide to the Lenders concurrently with (or, if commercially reasonable, prior to) such action by the Security Agent, notice of such action by the Security Agent, provided that the failure to give any such notice to such Lenders shall not affect the validity of such action.

Section 10.03 Indemnification.  The Security Agent shall not be required to take any action or refrain from taking any action under Sections 10.01 (other than the first sentence thereof) or 10.02 or Article IX unless the Security Agent shall have been indemnified by the Lenders against any liability, cost or expense (including counsel fees) which may be incurred in connection therewith.  The Security Agent shall not be under any obligation to take any action under this Security Agreement and nothing in this Security Agreement contained shall require the Security Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity

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against such risk or liability is not reasonably assured to it.  The Security Agent shall not be required to take any action under Section 10.01 (other than the first sentence thereof) or 10.02 or Article IX, nor shall any other provision of this Security Agreement be deemed to impose a duty on the Security Agent to take any action, if the Security Agent shall have been advised by counsel that such action is contrary to the terms hereof or is otherwise contrary to law.

Section 10.04 No Duties Except as Specified in Security Agreement or Instructions.  The Security Agent shall not have any duty or obligation to use, operate, store, lease, control, manage, sell, dispose of or otherwise deal with the Aircraft or any other part of the Estate, or to otherwise take or refrain from taking any action under, or in connection with, this Security Agreement or any part of the Estate, except as expressly provided by the terms of this Security Agreement or as expressly provided in written instructions from Lenders as provided in this Security Agreement; and no implied duties or obligations shall be read into this Security Agreement against the Security Agent.  The Security Agent agrees that it will, in its individual capacity and at its own cost and expense promptly take such action as may be necessary to duly discharge all Security Agent Liens on any part of the Estate.

Section 10.05 No Action Except Under Loan Agreement, Security Agreement or Instructions.  The Security Agent agrees that it will not use, operate, store, lease, control, manage, sell, dispose of or otherwise deal with the Aircraft or any other part of the Estate except in accordance with the powers granted or reserved to, or the authority conferred upon, the Security Agent pursuant to this Security Agreement and in accordance with the express terms hereof.

ARTICLE XI

THE SECURITY AGENT

Section 11.01 Acceptance of Duties.  The Security Agent accepts the duties hereby created and applicable to it and agrees to perform the same but only upon the terms of this Security Agreement and agrees to receive and disburse all monies constituting part of the Estate in accordance with the terms hereof.  The Security Agent, in its individual capacity shall not be answerable or accountable under any circumstances, except (a) for its own willful misconduct or gross negligence or failure to use ordinary case in the receipt, handling and disbursement of funds, (b) as provided in the last sentence of Section 10.04, and (c) for liabilities that may result from the nonperformance of any covenant of the Security Agent in the Loan Agreement or any other Transaction Document.

Section 11.02 Absence of Duties.  Except in accordance with written instructions furnished pursuant to Section 10.01 or 10.02, and except as provided in, and without limiting the generality of, Sections 10.03 and 10.04, the Security Agent shall have no duty (i) to see to any registration of the Aircraft or any recording or filing of this Security Agreement or any other document, or to see to the maintenance of any such registration, recording or filing, (ii) to see to any insurance, whether or not the Borrower shall be in default with respect thereto, (iii) to see to the payment or discharge of any Lien of any kind against any part of the Estate other than Security Agent Liens, (iv) to confirm, verify or inquire into the failure to receive any financial statements of the Borrower or (v) to inspect the Aircraft at any time or ascertain or inquire as to

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the performance or observance of any of the Borrower’s covenants under this Security Agreement with respect to the Aircraft.  Except as expressly otherwise provided herein and in the Loan Agreement, the Lenders shall not have any duty or responsibility hereunder, including, without limitation, any of the duties mentioned in clauses (i) through (v) above.

Section 11.03 No Representations or Warranties as to Aircraft or Documents.  THE SECURITY AGENT DOES NOT MAKE AND SHALL NOT BE DEEMED TO HAVE MADE AND EXPRESSLY DISCLAIMS ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, AIRWORTHINESS, VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, QUALITY, DURABILITY, OPERATION, MERCHANTABILITY, CONSTRUCTION, PERFORMANCE OR FITNESS FOR USE OR PURPOSE OF THE AIRCRAFT OR ANY PART THEREOF, AS TO THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE OF ANY INFRINGEMENT OF ANY PATENT, TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON STRICT LIABILITY IN TORT OR AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE AIRCRAFT OR ANY ENGINE OR ANY PART THEREOF OR ANY OTHER REPRESENTATION OR WARRANTY WITH RESPECT TO THE AIRCRAFT OR ANY ENGINE OR ANY PART THEREOF WHATSOEVER.  The Security Agent does not make and shall not be deemed to have made any representation or warranty as to the validity, legality or enforceability of this Security Agreement or the Notes or as to the correctness of any statement contained in any thereof.  The Lenders make no representation or warranty hereunder whatsoever.

Section 11.04 No Segregation of Monies; No Interest.  Subject to the provisions of Article XII, any monies paid to or retained by the Security Agent pursuant to any provision hereof and not then required to be distributed to any Lender need not be segregated in any manner except to the extent required by law, and may be deposited under such general conditions as may be prescribed by law, and the Security Agent shall not (except as otherwise provided in Section 12.01) be liable for any interest thereon; provided that any payments received or applied hereunder by the Security Agent shall be accounted for by the Security Agent so that any portion thereof paid or applied pursuant hereto shall be identifiable as to the source thereof.

Section 11.05 Reliance; Agents; Advice of Counsel.  The Security Agent shall not incur liability to anyone in acting upon any signature, instrument, notice, resolution, request, consent, order, certificate, report, opinion, bond or other document or paper believed by it to be genuine and believed by it to be signed by the proper party or parties.  The Security Agent may accept a copy of a resolution of the Board of Directors of any party to the Loan Agreement, certified by the Secretary or an Assistant Secretary thereof as duly adopted and in full force and effect, as conclusive evidence that such resolution has been duly adopted and that the same is in full force and effect.  As to the aggregate unpaid principal amount of Notes outstanding as of any date and any other amounts owed under such Notes, the Borrower may for all purposes hereof rely on a certificate signed by any Vice President or other authorized officer of the Security Agent.  As to any fact or matter relating to the Borrower the manner of ascertainment of which is not specifically described herein, the Security Agent may for all purposes hereof rely on a certificate, signed by a duly authorized officer of the Borrower, as to such fact or matter, and such certificate shall constitute full protection to the Security Agent for any action taken or omitted to be taken by it in good faith in reliance thereon.  The Security Agent shall assume, and shall be fully

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protected in assuming, that the Borrower is authorized to enter into this Security Agreement and to take all action to be taken by it pursuant to the provisions hereof, and shall not inquire into the authorization of the Borrower with respect thereto.  In the administration of the trust hereunder, the Security Agent may execute any of the trusts or powers hereof and perform its powers and duties hereunder directly or through agents or attorneys and may, at the expense of the Estate, advise with counsel, accountants and other skilled persons to be selected and retained by it, and the Borrower and the Security Agent shall not be liable for anything done, suffered or omitted in good faith in accordance with the written advice or written opinion of any such counsel, accountants or other skilled persons.

Section 11.06 Further Assurances; Financing Statements.  At any time and from time to time, upon the request of the Security Agent, the Borrower shall promptly and duly execute and deliver any and all such further instruments and documents as may be specified in such request and as are necessary or desirable to perfect, preserve or protect the security interests created or intended to be created hereby, or to obtain for the Security Agent the full benefit of the specific rights and powers herein granted, including, without limitation, the authorization and delivery of Uniform Commercial Code financing statements and continuation statements with respect thereto, or similar instruments relating to the perfection of the security interests created or intended to be created hereby.

ARTICLE XII

INVESTMENT OF FUNDS

Section 12.01 Investment of Funds.  Any moneys paid to or retained by the Security Agent that are required to be paid to the Borrower or applied for the benefit or at the direction of the Borrower, but which the Security Agent is entitled to hold under the terms hereof pending the occurrence of some event or the performance of some act (including, without limitation, the remedying of a Potential Default or Event of Default), shall, until paid to Borrower or otherwise applied in accordance with the terms of the Transaction Documents, be invested by the Security Agent as Borrower (or if an Event of Default shall have occurred and is continuing, the Security Agent) may from time-to-time direct in writing (or orally and confirmed in writing) (it being understood that absent such a direction, there shall be no obligation to invest such moneys) in (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States government or (b) issued by any agency or instrumentality of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either S&P or Moody’s; (iii) commercial paper not issued by the Borrower maturing no more than one year after such date and having, at the time of the acquisition thereof, a rating of at least A-2 from S&P or at least P-2 from Moody’s; (iv) certificates of deposit or bankers’ acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least “adequately capitalized” (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than

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$500,000,000; (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody’s; and (vi) auction rate preferred securities that have the highest rating obtainable from either S&P or Moody’s and with a maximum reset date at least every 30 days  There shall be promptly remitted to Borrower or its order (but no more frequently than monthly) any gain (including interest received) realized as a result of any such investment (net or any, fees, commissions and other expenses, if any, incurred in connection with such investment) unless a Potential Default or an Event of Default shall have occurred and be continuing.  The Borrower shall be responsible for any net loss realized as a result of any such investment and shall reimburse the Security Agent on demand.  All investments held by the Security Agent pursuant to this Section 12.01 shall either be (a) registered in the name of, payable to the order of, or specially endorsed to, the Security Agent, or (b) held in an Eligible Account.

ARTICLE XIII

SUCCESSOR SECURITY AGENTS

Section 13.01 Resignation of Security Agent; Appointment of Successor.  (a)  The Security Agent or any successor thereto may resign at any time without cause by giving at least 30 calendar days’ prior written notice to the Borrower and each Lender, such resignation to be effective upon the acceptance of the duties of the Security Agent hereunder by a successor Security Agent.  In addition, the Required Lenders may at any time remove the Security Agent without cause by an instrument in writing delivered to the Borrower and the Security Agent, such removal to be effective upon the acceptance of the duties of the Security Agent hereunder by a successor Security Agent.  In the case of the resignation or removal of the Security Agent, the Required Lenders may appoint a successor Security Agent by an instrument signed by such Lenders.  If a successor Security Agent shall not have been appointed within 30 calendar days after such notice of resignation or removal, the Security Agent, the Borrower or any Lender may apply to any court of competent jurisdiction to appoint a successor Security Agent to act until such time, if any, as a successor shall have been appointed as above provided.  The successor Security Agent so appointed by such court shall immediately and without further act be superseded by any successor Security Agent appointed as above provided within one year from the date of the appointment by such court.

(b)           Any successor Security Agent, however appointed, shall execute and deliver to the Borrower and to the predecessor Security Agent an instrument accepting such appointment (including, consenting to the registration with the International Registry of an assignment of international interests registered for the benefit of the predecessor Security Agent relating to the Airframe and any Engines), and thereupon such successor Security Agent, without further act, shall become vested with all the estates, properties, rights, powers and duties of the predecessor Security Agent hereunder in the trusts hereunder applicable to it with like effect as if originally named the Security Agent herein; but nevertheless upon the written request of such successor Security Agent, such predecessor Security Agent shall execute and deliver an instrument transferring to such successor Security Agent, upon the trusts herein expressed applicable to it, all the estates, properties, rights and powers of such predecessor Security Agent, and such predecessor Security Agent shall duly assign, transfer, deliver and pay over to such successor Security Agent all monies or other property then held by such predecessor Security Agent hereunder.

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(c)           Any successor Security Agent, however appointed, shall, so long as no Event of Default shall be continuing, be reasonably acceptable to the Borrower, be a “citizen of the United States” within the meaning of Section 40102(a)(15) of the Federal Aviation Act and either (x) shall be a Lender or (y) shall be a bank or trust company having a combined capital and surplus of at least $500,000,000, if there be such an institution willing, able and legally qualified to perform the duties of the Security Agent hereunder upon reasonable or customary terms.

(d)           Any corporation into which the Security Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Security Agent shall be a party, subject to the terms of paragraph (c) of this Section, be the Security Agent under this Security Agreement without further act.

ARTICLE XIV

[RESERVED]

ARTICLE XV

MISCELLANEOUS

Section 15.01 Termination of Security Agreement.  Upon payment in full of the principal of and interest on, Prepayment Fee (if any) and LIBOR Breakage Costs (if any), and all other amounts due under all Notes and the payment and performance in full of all other Secured Obligations then due and, if a Potential Default or an Event of Default shall have occurred and be continuing, payment in full of the Other Secured Obligations then due and unpaid, the Security Agent shall execute and deliver to or as directed in writing by the Borrower an appropriate instrument releasing the Aircraft and the Estate from the Lien of this Security Agreement, and the Security Agent shall execute and deliver such instrument as aforesaid and, at the Borrower’s expense, will execute and deliver such other instruments or documents as may be reasonably requested by the Borrower to give effect to such release; provided, however, that this Security Agreement and the trusts created hereby shall earlier terminate and this Security Agreement shall be of no further force or effect and the rights of the Lenders and the Security Agent shall terminate (and the Security Agent shall release, by an appropriate instrument, the Estate and the Aircraft from the Lien of this Security Agreement) upon any sale or other final disposition by the Security Agent of all property part of the Estate and the final distribution by the Security Agent of all monies or other property or proceeds constituting part of the Estate in accordance with the terms hereof.  In addition, in connection with the release of the Lien of this Security Agreement, if an international interest in favor of the Security Agent with respect to the Airframe and any Engine subject to the Security Agreement shall have been registered with the International Registry, the Security Agent shall discharge or consent in writing to the discharge of such registration.  Except as aforesaid otherwise provided, this Security Agreement and the security interests created hereby shall continue in full force and effect in accordance with the terms hereof.

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Section 15.02 No Legal Title to Estate in Lenders.  No Lender shall have legal title to any part of the Estate.  No transfer, by operation of law or otherwise, of any Note or other right, title and interest of any Lender in and to the Estate or hereunder shall operate to terminate this Security Agreement or entitle such Lender or any successor or transferee of such Lender to an accounting or to the transfer to it of legal title to any part of the Estate.

Section 15.03 Sale of Aircraft by the Security Agent is Binding.  Any sale or other conveyance of the Aircraft by the Security Agent made pursuant to the terms of this Security Agreement shall bind the Lenders and shall be effective to transfer or convey all right, title and interest of the Security Agent, the Borrower and the Lenders in and to such Aircraft.  No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by the Security Agent.

Section 15.04 Security Agreement for Benefit of the Security Agent and Lenders.  Nothing in this Security Agreement, whether express or implied, shall be construed to give to any person other than the Borrower, the Security Agent, and the Lenders any legal or equitable right, remedy or claim under or in respect of this Security Agreement.

Section 15.05 No Action Contrary to Borrower’s Rights; Quiet Enjoyment.  Notwithstanding any of the provisions of this Security Agreement to the contrary, so long as no Event of Default shall have occurred and be continuing, the Security Agent agrees that it will not take any action in violation of the Borrower’s rights, including the right to quiet enjoyment, possession and use of the Aircraft in accordance with the terms of this Security Agreement by Borrower or its Lessee.

Section 15.06 Notices.  Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers or documents provided or permitted by this Security Agreement to be made, given, furnished or filed shall be in writing, mailed by certified mail, postage prepaid, or by confirmed telex, or by confirmed facsimile or electronic mail and (i) if to the Security Agent, addressed to it at its office at 300 South Grand Avenue, Los Angeles, CA 90071, Attention: Kathleen Park, facsimile: 213-613-3566, or (ii) if to the Borrower, addressed to it at its office at 3375 Koapaka Street, Honolulu, HI 96819, Attention: Executive Vice President, Chief Financial Officer and Treasurer, facsimile: 808-835-3699, or (iii) if to any Lender, addressed to such party at such address as such party shall have furnished by notice to the Borrower and the Security Agent, or, until an address is so furnished, addressed to the address of such party (if any) set forth on the signature pages of the Loan Agreement.  Whenever any notice in writing is required to be given by the Borrower or the Security Agent or any Lender to any of the other of them, such notice shall be deemed given and such requirement satisfied when such notice is received, if such notice is received, if such notice is mailed by certified mail, postage prepaid, or is sent by courier service, or by confirmed facsimile addressed as provided above.  Any party hereto may change the address to which notices to such party will be sent by giving notice of such change to the other parties to this Security Agreement.

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Section 15.07       Authorization of Financing Statements.  Pursuant to any applicable law, the Borrower authorizes the Security Agent (which shall be deemed a permissive right and not an obligation) to file or record financing statements and other filing or recording documents or instruments with respect to the Estate without the signature of the Borrower in such form and in such offices as the Security Agent and the Required Lenders determine appropriate to perfect the security interests of the Security Agent under this Security Agreement.

Section 15.08       Severability.  To the fullest extent permitted by law, any provision of this Security Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 15.09       No Oral Modifications or Continuing Waivers.  No terms or provisions of this Security Agreement may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the party or other Person against whom enforcement of the change, waiver, discharge or termination is sought and any other party or other Person whose consent is required pursuant to this Security Agreement.  Any waiver hereof shall be effective only in the specific instance and for the specific purpose for which such waiver was given.

Section 15.10       Successors and Assigns.  This Security Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that Borrower may not assign or transfer its rights and obligations under this Security Agreement without Security Agent’s prior written consent.

Section 15.11       Headings.  The headings of the various Articles and Sections herein and in the table of contents hereto are for the convenience of reference only and shall not define or limit any of the terms or provisions hereof.

Section 15.12       Governing Law; Counterpart Form.  (a)  THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE WITHOUT REGARD TO ANY PRINCIPLES OF CONFLICT OF LAWS THAT MIGHT APPLY THE LAWS OF ANY OTHER JURISDICTION.  THIS SECURITY AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK.  Each of the Borrower and Security Agent hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Security Agreement or any other Transaction Document, or for recognition or enforcement of any judgment, and each of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such federal court.  Each party hereto further irrevocably consents to the service of process out of any of the aforementioned courts in any action or proceeding by the making of copies thereof by registered or certified mail, postage prepaid, to it at its address

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specified pursuant to Section 15.06, such service to become effective thirty (30 days after such mailing.  Each of the Borrower and Security Agent agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Security Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Security Agreement or the other Transaction Documents against any other party hereto, or such party’s properties, in the courts of any jurisdiction.

(b)           Each party hereto hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Security Agreement brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

Section 15.13       WAIVER OF JURY TRIAL.  EACH OF THE BORROWER AND THE SECURITY AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 15.14       Counterparts.  This Security Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument.

*          *          *

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IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by their respective officers thereunto duly authorized, as of the day and year first above written, and acknowledge that this Security Agreement has been made and delivered in the City of New York and shall become effective only upon such execution and delivery.

HAWAIIAN AIRLINES, INC.,

as Borrower

By:

Its:

By:

Its:

C.I.T LEASING CORPORATION,

as Security Agent

By:

Its:

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EX-21.1

Exhibit 21.1

List of Subsidiaries

Hawaiian Airlines, Inc., a Delaware corporation
Hawaiian Gifts, LLC, an Arizona limited liability company

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements of Hawaiian Holdings, Inc. of our reports dated March 15, 2007, with respect to the consolidated financial statements and schedule of Hawaiian Holdings, Inc., Hawaiian Holdings, Inc. management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting of Hawaiian Holdings, Inc., and our report dated March 17, 2006, with respect to the financial statements of Hawaiian Airlines, Inc., included in the Annual Report (Form 10-K) of Hawaiian Holdings, Inc. for the year ended December 31, 2006.

Form	Description
S-3	Hawaiian Holdings, Inc. Common Stock (No. 333-133615)
S-3	Hawaiian Holdings, Inc. Common Stock (No. 333-129503)
S-8	Hawaiian Holdings, Inc. 2005 Stock Incentive Plan (No. 333-127732)
S-8	Hawaiian Airlines, Inc. Stock Bonus Plan (No. 333-127731)
S-8	Hawaiian Holdings, Inc. 401(k) Savings Plan (No. 333-09671)
S-8	Hawaiian Holdings, Inc. Pilots’ 401(k) Plan (No. 333-09669)
S-8	Hawaiian Holdings, Inc. Pilots’ 401(k) Plan (No. 333-61244)
S-8	Hawaiian Holdings, Inc. 401(k) Plan for Flight Attendants (No. 333-09667)

/s/ ERNST & YOUNG LLP                

Honolulu, Hawaii
March 15, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Mark B. Dunkerley, certify that:

1.I have reviewed this Annual Report on Form 10-K of Hawaiian Holdings, Inc. for the year ended December 31, 2006;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007	By:	/s/ MARK B. DUNKERLEY
		Mark B. Dunkerley
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Peter R. Ingram, certify that:

1.I have reviewed this Annual Report on Form 10-K of Hawaiian Holdings, Inc. for the year ended December 31, 2006;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2007	By:	/s/ PETER R. INGRAM
		Peter R. Ingram
		Chief Financial Officer and Treasurer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Hawaiian Holdings, Inc. (the Company) for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Mark B. Dunkerley, President and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 15, 2007	By:	/s/ MARK B. DUNKERLEY
		Mark B. Dunkerley
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Hawaiian Holdings, Inc. (the Company) for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Peter R. Ingram, Chief Financial Officer and Treasurer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 15, 2007	By:	/s/ PETER R. INGRAM
		Peter R. Ingram
		Chief Financial Officer and Treasurer